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Gov't Urged: Focus On Distressed Homes For Housing Recovery

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government has been urged to focus on distressed properties, rather than new housing developments, in its "daunting task" of reviving the Bahamian mortgage market.

Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that the Government's recently-announced housing initiative "doesn't bode well for the economy" by threatening to further increase the existing over-supply of properties.

Mr Bowe, who is also Fidelity Bank (Bahamas) chief financial officer, argued that the Minnis administration would better achieve its objectives by instead focusing on how to place existing homes - subject to delinquent mortgages - into the hands of qualified buyers at affordable prices.

Emphasising that a "structured" solution is required, Mr Bowe said resurrecting the local housing/mortgage market was "the most important element" in generating renewed economic growth and "swallowing" the $1.8 billion surplus liquidity currently drowning the commercial banking sector.

And he echoed concerns expressed by Tim Rider, Royal Bank of Canada's (RBC) now-retiring vice-president of northern Caribbean sales, in a controversial speech at Fidelity's recent Bahamas Economic Outlook conference by calling for clarity in the mortgage market's legislative and regulatory framework. "When you look at the mortgage environment, the Government has a daunting task that it faces," Mr Bowe told Tribune Business. "There's a lot of chatter around new housing developments and projects, but I would probably say the Government ought to look at the housing inventory that exists.

"Look at how to acquire those homes, and put them into the hands of borrowers who can afford them. Building new homes while having excess inventory doesn't bode well for the economy."

The Prime Minister, in his recent national address, unveiled a plan to make low-cost serviced lots - complete with utilities and the necessary infrastructure - available at a price of less than $30,000 to first-time Bahamian home buyers.

While purchasers would then be responsible for their own homes, Dr Minnis said they would also access Customs duty exemptions on imported construction materials and equipment if their homes were built within two years.

Emphasising that the Government's primary goal was to expand affordable home ownership among young Bahamians, Dr Minnis said "the average home" today costs $180,000 and upwards - a price tag that he argued was out of reach for many.

"Remember, the average lot today may cost $100,000 or more, so that's automatically a $70,000 savings," the Prime Minister said last week. "When you are constructing your home, you paying duty; you talking about 30 to 50 per cent duty on various things.

"If that's at least another $60,000 to $80,000 savings, you're talking about $70,000 savings, another $60,000 to $80,000 savings, you're talking about the average Bahamian being allowed to save at least a minimum of $120,000 when you remove all those extra taxes."

Mr Bowe, though, argued that his plan would "get buoyancy back" and achieve the same goals without adding to the excess supply of housing and further depressing prices. With prices already experiencing "pressure", he said this provided the Government with an opportunity to get first-time buyers into existing homes at affordable prices

While some observers may view his comments as serving the banks' interests, given their desire to shed non-performing mortgage loans/properties, the potential 'Achilles heel' of the Government's plan is whether borrowers will qualify for loans even at reduced prices.

The Central Bank's December economic report said less than half of all mortgage applications, just over 43 per cent, are currently being approved by commercial banks. This indicates the continued struggle to find qualified buyers able to service loans and meet the industry's more stringent lending criteria.

Private sector-led initiatives have already enjoyed some success. Gateway Financial has been able to restructure some $60-$70 million worth of delinquent mortgages it acquired from Scotiabank (Bahamas) at between $0.25-$0.30 on the dollar, providing a potential model for how Bahamian home ownership can be saved.

Mr Bowe, meanwhile, identified three issues - excess housing inventory, the $1.8 billion in surplus bank lending assets, and regulatory clarity - that needed to be resolved if the housing market is to revive. On the latter, he pointed to three recent initiatives set to impact the market.

Besides the recently-introduced Credit Reporting Bill, which facilitates the creation of the Bahamas' first-ever Credit Bureau, the former Christie administration also passed the Homeowners Protection Bill and initiated the Mortgage Relief Plan's second version.

"These three positions need to be very clear so as not to stagnate the mortgage arrears issue facing the country," the BICA president warned.

K P Turnquest, deputy prime minister and minister of finance, has previously said the Government is reviewing both the Mortgage Relief Plan and Homeowners Protection Act.

He expressed scepticism over the first, given that it has not assisted the number of distressed mortgage borrowers predicted by the Christie administration, while acknowledging that the latter Act risked unintended consequences.

And Sir Franklyn Wilson, the Arawak Homes chairman, last year branded the Homeowners Protection Act as "a real disaster" for the Bahamas' struggling mortgage market in an interview with Tribune Business.

A well-known Progressive Liberal Party (PLP) supporter, 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.

Apart from regulatory clarity, Mr Bowe said the Government needed to focus on getting distressed properties back into "the performing portfolio" if it was to revive the housing market, something he conceded was no easy task.

"We have a significant inventory of houses on the market, and there needs to be a strong focus on getting those sold into the performing portfolio," the BICA president argued. "That's not easy as the economy is not producing a lot of qualified borrowers that get to but these homes in a distressed state."

Acknowledging that this would result in 'winners and losers', with some delinquent mortgage-holders losing their homes, Mr Bowe said making distressed properties available to qualified buyers at affordable prices would reduce both the housing over-supply and the banking sector's liquidity clog.

"Some people will lose their homes, but equally it will be an opportunity for people coming into the housing market to have affordable homes," he told Tribune Business. "There is a lot that has to be done in a structured manner.

"We want to see the liquidity swallowed up, and the only way that happens is if we have growth in the economy and housing market."

Comments

bogart 3 months, 4 weeks ago

What nonsense!!!

If Gateway another Bahamian mortgsge lender using the same mathematical tables can go to the trouble meet the Bank..... and .....negotiate .....and ..buy mortgages in distress....and.. pay stamp taxes...... and pay another staff......business licence....operate an office....and.....restructure loans ....to make a PROFIT...then any bank can do the same!!!!

ITS TIME THE GOVT EXAMINE THE LOAN APPLICATIONS TO SEE THE WAYS THE AGGRESSIVE BANK LOAN OFFICERS DID TO GET THE LOANS APPROVED TO MEET THEIR TARGETS FOR BONUSES OR PAY INCREASE,!! AND BANKERS , ACCOUNTANTS.., BANK MANAGERS SENT TO JAIL FOR FRAUD IF DISCOVERED,!!!! 8000 plus Bahamians mortgage customers who defaulted CANNOT ALL be wrong!! Common sense is that if all banks changed their mortgage application loan process then something was WRONGwith yheir own methodology.

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DonAnthony 3 months, 4 weeks ago

Mr. Bowe should look in the mirror. These banks shoulder more of the blame than anyone else for the massive backlog of distressed mortgages that are an albatross on their balance sheets. Rather than mark these properties down massively to sell them they hold them for years and years and the entire economy suffers. Though painful it would be better to sell these properties and let the capitalist market system do its magic. Persons could move on to rent or own properties they could afford, new buyers who were renters could become home owners, the banks would be able to clawback much of the provisions they had against these properties. We need reform of mortgage regulation, just the opposite of what the PLP had in mind so that these properties could be cheaply and easily sold. It is creative destruction, the old decayed limbs are pruned away, leading to new growth. Instead because of these banks we have stagnation.

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bogart 3 months, 4 weeks ago

The govt is deeply indebted to these banks ......govt has multi million overdrafts with banks so that the govt workers can be paid....govt has been able to request 65m ? In the morning to borrow to build new PMH wing and by afternoon it is approved.....govt is able to get consortium of local banks to borrow money for ..roadworks...dredge the Harbour....etcetcetc...In return Banks purchase govt Treasury Bills etcetcetc...Mind you it would be interesting to see disclosure of govt officers loans at banks....start with Bank of the Bahamas.... ......noone looks out for the ordinary Bahamian bank customers ...As in the UK , Bahamians need a Financial Conduct Authitity and to be sble to investigate, individuals, organizations etc or as in the USA a Consumer Financial Protection Bureau and Anti Trust laws anti Competition laws. INSTEAD we have a Central Bank with the same govt appointing tge Governor And the Board Of Directors.....who will tell you they only deal on a bank to bank basis....No financial representation for the bank customer....and if you have a financial problem its not like the bank overpays you why youre complaining.....youre struggling, in pain, stressed out....and no help to correct any of the banks wrongdoings......

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bogart 3 months, 4 weeks ago

......what a banker!!!! .....Mr. Bowe..."some people will lose their homes, but equally it will be an opportunity for people coming into the houusing market to have affordable homes." This is an 80 sq mile island and daily getting smaller as new construction occurs. Supply will get smaller and demand rise with prices beyond the reach of many as what the PM Minnis and govt is trying to assist with. All govts do this. As the banker accountant he should know that 4,000 mottgage accounts are ususlly joint husband wife. 4,000 means 8000 people families, kids, parents, handicapped, ill, elderly and other families who support them adds up to perhaps 25,000. In almost every 25 year term mortgage there are problems, these are not 'people' they are Bahamians....evicting them on this small island is how you accountant bankers view this. These 25,000 Bahamians have no govt agencies yo look into the massive over zealous bankers giving out marginal loans for bonuses or whether these previous applications were done without due care or negligence!! If Gateway can lower interest, reamortize, waiver, lower payments, take guarrantees, raise payments as improvements, lengthen and lower payments interest termsso can others. Trying to get rid of possible fraudelent evidence of negligence or sell outs to redice liability should be raised by govt if Gateway can reorganize to make it work. Im also impresses with another bank who seem to make it work for the customer.

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bogart 3 months, 4 weeks ago

...i still am sctraching my head on this.... Govt trying to create realistically likely priced land 30,000 and elimiinating stamp duties on building materials to get homes around 80,000??. to 120,000 ??for qualified homeowner applicants......when the current average homesare around 180,000 upwards

Accountant banker wants the govt to have the opportunity to provide first-time homeowners into existing repossessed homes at affordable prices by buying existing repossessed homes market valued valued 180,000 upwards at prices for yhose customers the govt is trying to help first time buyers...80-120k?? Range

QUESTION....will not those whom the govt has evicted along with their families now be on yhe road trying to find lodgings??? ....after the original owner has paid downpayment, lawyers fees, maintenance, capital appreciation on their investments worth 180,000 or more....QUESTION ...WHY WOULD GOVT following the accontant banker line of reasoning want the original owner to have his home repossessed at a low value so the govt target applicant can qualify??..NAUGHYY..NAUGHTY...NAUGHTY....sounds likr defrauding the origonal homeowner to make the home low costing for the lowet qualifying govt applicant to qualify....

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killemwitdakno 3 months, 3 weeks ago

Well damn. The bank don't want you have nothing. ROFL.

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