The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Government’s revived Mortgage Relief Plan appears to reward delinquent borrowers with higher debt service ratios, who will enjoy a higher proportionate cut to their monthly payments upon qualifying.

Michael Halkitis, minister of state for finance, said borrowers with a total debt service ratio below 45 per cent of income must have their monthly mortgage payments by “at least 20 per cent’.

Yet those with debt-service ratios higher than 45 per cent of total income must have a monthly payment reduction of at least 25 per cent, the Minister told the House of Assembly in kicking-off the 2016-2017 Budget debate.

While borrowers with higher debt-service ratios will likely require deeper cuts to their monthly repayments to help make them ‘current’ again, some observers will likely view this policy as ‘rewarding’ those who have been more irresponsible in their credit habits.

Unveiling more details of the second Mortgage Relief Plan, Mr Halkitis also indicated that not all commercial banks had signed up to the programme.

“If a bank believes that a mortgage can be restructured outside the parameters of this programme, it is welcome to do so,” he said.

“The application window will be restricted to six months from programme  announcement and will be effective for three years.

“Participating banks will be required to make contact with each potentially eligible borrower within three months of launch. Once approved for participation in the programme, the borrower will be required to sign an agreement reflecting their mortgage relief plan obligations and consequences of breach.

To be eligible for the revived plan, borrowers must be more than 90 days past due as of May 1, 2016. The  property  must be located in the Bahamas and owner-occupied up to  duplex status, and the current outstanding mortgage balance should not exceed $500,000.

“Borrowers’ current total debt-service ratio must be less than 75 per cent,” added Mr Halkitis.

“The borrower must agree to full disclosure, to restrictions on incurring any further personal debt, and commit to allowing no other salary deductions other than those in place at the time of restructuring.

“The borrower must successfully complete a sixmonth trial period where successful completion is defined as not more than one period greater than 30 days past due, and the borrower agrees to participate in free financial counselling.”

Mr Halkitis said that to achieve the borrower’s targeted monthly payment reduction, participating banks must apply a series of successive steps.

• Capitalise accrued interest and/or arrears with no capitalisation of late fees.

• Extend the loan term in accordance with Central Bank guidance.

• Reduce the interest rates to the average market rate.

*Reduce the interest rate to below market level.

• Forbear some principal interest, with the amount to be paid upon a future sale of property or as an increased monthly payment that includes the forbone amount after three years.

Banks will be required to provide data to the Central Bank on loan resolution results and borrower outcomes for the duration of the programme. 

Reporting will  be required on a monthly basis for the first year, and on a quarterly basis in years two and three. Any legal action underway by banks will be stayed for participating borrowers.

Mr Halkitis said borrowers with total debt-service ratios above 45 per cent will be required to participate in free financial counselling. 

This, he explained, was to help borrowers escape finding themselves in the same position a few months later.

“We are trying to develop a holistic approach,” he said. “Over leveraging, particularly in the area of consumer products, which when it was truly revealed, led to a lack of success of the previous programme. We are trying to put together a comprehensive programme with emphasis on consumer education.”    

Opposition Finance spokesman, K. P Turnquest, expressed his doubts about the revived plan, stating that it was “equally as disastrous as the previous one”.

“We are not prone to fanciful promises; we are looking for real results,” he said.

A Mortgage Relief Plan was one of the core campaign promises made by the Progressive Liberal Party (PLP) in the run-up to the 2012 general election.

The Christie administration, after assuming office that year, committed roughly $10 million to its Mortgage Relief Plan, which was supposed to benefit around 1,000 out of an estimated 4,000 delinquent homeowners.

The plan ultimately ended up assisting less than 10 mortgage borrowers.