By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Arawak Homes chairman yesterday urged the Government to "urgently review" the Homeowners Protection Act, branding it "a real disaster" for the Bahamas' struggling mortgage market.
Sir Franklyn Wilson, a well-known Progressive Liberal Party (PLP) supporter, criticised the Christie administration for "unnecessarily rushing" the Act into law so it could meet a 2012 manifesto promise prior to the May 10 general election.
He argued that it imposed overly-burdensome restrictions on what banks and other mortgage lenders "can and cannot do" in relation to their distressed properties, and introduced concepts and definitions that were unworkable in practice.
In particular, Sir Franklyn said the requirement that delinquent real estate assets be sold at 'market value' was unduly subjective, given that a single property could attract five different appraisal values from five different appraisers.
In addition, the Act prevents mortgage lenders from selling distressed homes to relatives of their staff, including cousins. Given the tight-knit nature of Bahamian society, Sir Franklyn said this requirement - especially given the absence of definitions - would be extraordinarily difficult to comply with "because almost everyone's a cousin".
He conceded, though, that there was "no disputing the need" to appropriately protect Bahamian homeowners and consumers.
The Arawak Homes chairman added that Bahamas-based banks and real estate appraisers had, to some extent, brought the Homeowners Protection Act upon themselves through unrealistic valuations and the way customers previously in 'good standing' had been treated.
But, with some $529 million worth of mortgage loans still delinquent at end-August 2017, Sir Franklyn told Tribune Business: "The information I am receiving is that this Homeowners Protection Act is a real disaster for the country, for everybody, and that there's an urgent need to review it with a view to bringing about some amendments.
"The Homeowners Protection Act introduces concepts as to what you can and can't do. It talks about who you can sell distressed properties to. You can't sell to anyone who's a cousin. It introduces this concept of 'cousin' without defining 'cousin'. In the Bahamas, everyone's a cousin. Who's going to establish if someone's a cousin? How am I supposed to do that?
"It introduces the concept of a lender having to sell [a distressed property] at market value. What's the 'market value'? Fifty appraisers will come up with 50 different valuations. The owner of the property can go to court and say they got an appraisal that says their house is worth four times' what the bank says."
Sir Franklyn said the uncertainty and confusion resulting from these deficiencies was why the Homeowners Protection Act, which he argued was introduced with the best of intentions, was "in very serious need of review" by the Minnis administration.
"Everyone knows my political position in the country," he told Tribune Business, "but the PLP government in an effort to meet what it told the country it was going to do just before the election rushed it through unnecessarily so.
"My intelligence tells me that it was a significant time after the election before the banking community and new government realised what had happened. The Homeowners Protection Act is in urgent need of attention because it not only affects the banks; it affects the attitude of any buyer purchasing from the bank.
"This whole sector [mortgage/housing market] has been put in disarray by the passage of this Act, and I urge the Government of the day to engage with lenders sooner rather than later to see how best the Act can be reformed. The way it has been done is likely to drastically and adversely depress the mortgage market."
Sir Franklyn's fears echo the warnings issued by top commercial banking executives after the Homeowners Protection Act was passed into law by the Christie administration in early 2017.
They warned at the time that home loan costs and accessibility could largely depend on how the courts interpreted the Act's provisions,
Ian Jennings, Commonwealth Bank's president, told Tribune Business at the time that his institution viewed the legislation as "changing the risk profile of mortgage financing".
He added that Commonwealth Bank, and all other Bahamas-based commercial banks, would now have to each determine whether this impact was "material" enough to spark an increase in mortgage lending rates and/or a tightening of their borrowing criteria.
Suggesting that the latter could involve requiring borrowers to come up with higher downpayment or equity contributions, Mr Jennings said then that it was "too soon" to determine the Act's impact on the mortgage and housing markets.
The Act inserts the courts into the foreclosure and 'power of sale' process, requiring lenders to give delinquent borrowers 30 days' notice before either invoking their 'power of sale' under the mortgage or seeking a court-approved foreclosure.
In both cases, borrowers can apply to the Supreme Court for relief. On the foreclosure process, the court can either adjourn, stay or suspend the matter if it believes the borrower will be able to pay principal and accrued interest within six months.
As for the 'power of sale', the latest version of the Bill allows the court to postpone this for "a reasonable period where a sum equal to at least one half of the principal, and accrued interest, has been paid at a specified time".
Mr Jennings, in common with Sir Franklyn yesterday, said the Act's provisions included definitions that needed to be clarified by the courts. He pointed to clause nine, which empowers the courts to prevent a bank exercising its 'power of sale' for a 'reasonable time' - with no definition of 'reasonable time'.
The Christie administration's rationale for developing the Homeowners Protection Act was to make delinquent Bahamian mortgage borrowers more secure in their homes, with all the attendant social and economic benefits that will bring if they can restructure their loans.
However, as indicated by Sir Franklyn, it threatens to increase the costs, time and difficulty/uncertainty incurred by banks in repossessing mortgage collateral - usually the homes and businesses subject to the original loan.
With a higher risk now associated with mortgage lending as a result, the banks may both hike interest rates and refuse to grant new Bahamian loan applicants access to credit.
Besides impeding Bahamian dreams of home ownership, this would further depress an already-struggling housing market, and negatively impact industries that rely heavily upon it, especially the construction, real estate and legal sectors.
Sir Franklyn, though, yesterday conceded that the mortgage lending and real estate industries had helped to bring the Homeowners Protection Bill upon themselves.
He argued that unrealistic appraisal valuations provided by realtors prior to the 2008-2009 recession had left lenders with over-valued properties offering insufficient collateral/security to cover the mortgage amount.
"With the greatest amount of respect to appraisers in this country, they were part of the problem," Sir Franklyn told Tribune Business. "Appraisers contributed to the mortgage crisis in this country by coming up with appraisals that did not reflect reality.
"But to entrench that lack of rigour in legislation is very unwise."
Sir Franklyn added that the commercial banking industry was also guilty, in some instances, of unfairly treating long-standing clients who had run into repayment difficulties through no fault of their own.
"I was in the presence of someone at the weekend who was down to 15 per cent on their mortgage balance, and had never missed a payment," the Arawak Homes chairman revealed.
"It was a rental property on Paradise Island. The tenant bolted on them. The mortgage fell slightly into arrears, but after two to three missed payments the bank came down on them like a ton of bricks and said they would foreclose on them.
"Few would disagree that this was a case where the homeowner should have had some degree of relief, rather than the bank coming down like a ton of bricks on them. With a 10-15 per cent balance, the bank knows equity is not an issue, it knows the circumstances, but rather than deciding to meet and talk they sent the borrower a letter saying this is going to happen.
"This type of action is driving this call for consumer protection. This case was a credible example of the need, but the way it has been addressed is to no one's advantage."
Comments
TalRussell 6 years, 6 months ago
Comrade Frankie, it has be hopeless if not even you has ways to the soulless Bankers, a miserable s bunch bottom feeders.
bogart 6 years, 6 months ago
Apart from the view of one wealthy and shrewd buyer or sellers of foreclosed homes there should be the view of the poor helpless and downtrodden.
Huge loan targets are given for local bankers to meet to get a satisfactory salary increase.
Despite over 4,000 mortgage accounts were in default for some one billion dollars in loans no investigation by any govt was ever carried out. 4,000 accounts are usually joint with 2 persons, husband and wife means 8,000 Bahamiana, usually there are 2 kids or more in a house, means 16,000 Bahamians. Parents,sick,physically handicapped,family members might add for total 20,000 Bahamians
When there is a default the is noone to turn to for help. Lawyers want fees and will say there is a conflict suing the hand that feeds them. If the loan officer had given a loan in error noone listens. If the contractor had messed up you still have to pay the loan payment. If the loan officer had left out some financial information to get the loan approved to meet their target noone cares, if the loan officer did not do a good analysis to make sure that if qualified to pay the loan the customer MUST also be able to pay bills and live was not done there is noone to complain to.
SO WHY SHOULD THERE BE ANYONE WANTING TO JUST BUY THE MORTGAGE CUSTOMER HOME WITHOUT ANY PROTECTIONS AFFORDED TO GRASSROOT OR ANY OTHER BAHAMIAN. SIMPLE DO NOT GIVE A LOAN IF YOU DO NOT WANT TO HELP THEM.
On the appraiser,banks who have been in business for a long time have a select list of qualified appraisers who are certified by reputable schools. On the matter of everyone being related one will note that there is distinctly not so, as Sands are generally fron Rock Sound, Coopers from Abaco,, Knowles, Ritchie, Mortimer, Long Island...........people are not all related.
Finally some fairness after decades. Investigations are needed not talk. The govt needs to talk to the poor people not the wealthy persons wanting to buy repossessed homes or the Bank Senior Officials. Banks will also have Court Judgments lodged against you for ever and never lose as they have all the money to hire the best lawyers and appeal and appeal and have you pay for losing. JAIL TIME FOR BANKERS WHO DO WRONG.....if a tief can go to jail for tiefing a can of sardine then a banker who mess you ip on a 100,000 mortgage should go to jail. FAIRNESS AND JUSTICE IS NEEDED FOR THE MAJORITY POOR AND AVERAGE AT ALL TIMES, NOT 2 WEEKS BEFORE ELECTION. THE RICH ALWAYS TAKE CARE OF THEMSELVES.
John2 6 years, 6 months ago
@ Bogart "Apart from the view of one wealthy and shrewd buyer or sellers of foreclosed homes there should be the view of the poor helpless and downtrodden". I could not agree with you more .All of your stated facts on behalf of the poor and the need for Fairness and Justice is spot on !
The realities of the helpless and downtroddeen have been caused by the likes of Sir snake and the predatory lending practices of the commercial banks. Sir snake is only complaining about the home owners protection act now because in this economy his real estate business is down. Too many Bahamians are simply maxed out with more the 90% of salaries going to salary deductions in some cases. so the over 4000 mortgage accounts in default should surprise no one because we are not a discipline people.i totally agree .... "FAIRNESS AND JUSTICE IS NEEDED FOR THE MAJORITY POOR AND AVERAGE AT ALL TIMES"
screwedbahamian 6 years, 6 months ago
As someone who has been in the Mortgage Loan Underwriting (Front End) and the Mortgage loan Default management (Collections and loan mitigation ) the ( Back End) for many years, The Bahamas Mortgage Loan Industry need to establish a Bahamas Uniform Standards of Professional Appraisal Practice allowing only persons who have been Trained and Certified to produce a uniform Real Estate Property Appraisal based on the Appraisal Standard. No Drive by inspections or Realtor Property valuations. Appraisals should include at least 1 comp of sold property within last 6 months, 2 comps of sold properties within last 12 months and 1 property for sale with all comps within 1 mile of the subject property. Banks should review and approved all mortgage loan through a Loan Approval Committee make up of mortgage loan officers and none mortgage loan officers of the bank, with written documentation records of the reason(s) the loan was approved or denied. Remove the responsibility of 1 individual making the decision. Collection departments should have, 15 day late collectors, 30 days collectors, 60 days collectors and 90 days and Loan Mitigation collectors, so that at every late stage the file is being reviewed by a different person/collector..
bogart 6 years, 6 months ago
Very good screwedbahamian.
Regretably the pressures for lenders to meet targets of giving out mortgage loans so that the bank officer or team can get bonuses or the basic salary increase is present so that profits can be seen by some official in a foreign country who knows less of the culture, market conditions than the Bahamian loan officer. We follow their approved forms. There may also be instituted by the bank peer pressure not only between Bahamas lenders but among other caribbean countries who may actually know where in the pipeline any loan officers loan is at on a daily computerized basis.
Many if not all loans are marginal with TDSR total loan debt service ratio at 45% and almost always there in not enough down payent forcing one to use an inemnity isurance to cover the a mount above equity reqmuirement. I agree with the loan approval committee which is there in form but then the push to meet targets seem to overcome as everyone has targets. The use of indemnity insurance needs to be reviewed as the criteria is that the insuror must be informed and steps to sell. The indemnity premium must be investigated to see who gets the commission. The application forms need to be reviewed to see whether it is in favour of the applicant qualifying and gives the applicant a fair chance of succeeding. Paying rent is not the same as paying mortgage because owning a house comes with an additional set of expenses. The Central Bank should certify forms or rather an independent agency to supervise and audit banks.
When financial hardships arise as will happen at some point during a 20 plus year mortgage there should be more avenues for the loan officer to take rather thsn follow textbook policy procedures to sell. Again there are targets to follow.
Compounding and sdding to defaults apart from questionable financial analysis is the fact some banks also present mortgage customer with a crrdit card to meet anpther target of credit card sold. Also many roadsode shops would then offer easy finsncing of a car or furnitures by salary deduction accelerating default.
Many customers have no recpirse and the wealthy deep pocket banks always win . The system is frsigned on favour of the bsnk. Adding to customer mortgage problem is bad contractors and while the customer has to pay loan payments they must at the same time get another contractpr who charges more plus at the same time have to sue the first contractor after depleating savings on downpayment and bank fees. Appraisers have different education with the original Appraiser goes to college for 4 years and the employee who is a real estate agrnt who can take courses.. The latter is also apprpved by Bahamas Parliamentry legislation. Yes mistakes are made by anyone.
Well_mudda_take_sic 6 years, 6 months ago
It is easy to understand why Snake is so concerned about the Homeowners Protection Act and the protection it affords poor homeowners. After all, not only is Snake directly involved in mortgage lending activities associated with his Arawak Homes group of companies, but he is tied in with investors (both local and foreign) who are buying-up on the cheap delinquent mortgages that the local banks are trying to remove from their balance sheets. For the greedy corrupt Snake it's always all about money - usually your money that he wants to swindle from you!
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