The Homeowners Protection Bill is before Parliament

Homeowners Protection Bill Debated

By Kendea Smith:



Lawmakers in the lower chamber yesterday began debate on the Homeowners Protection Bill, which is designed to assist struggling homeowners facing “extraordinary” circumstances to keep their homes.

Moving the Bill in the House of Assembly was State Minister for Finance Michael Halkitis.

“This Bill represents a modernisation of the lending framework in The Bahamas and creates a level playing field between borrowers and lenders. All of the provisions in the legislation have been benchmarked against international standards and hence are the standards that are in for in the home countries of the major lenders,” he said.

When passed, the court will be empowered to provide relief to borrowers from the consequences of breach of a loan agreement where the borrower pays the arrears by a reasonable time to be determined by the court.

The Bill also provides for the transfer of mortgages between financial institutions at no cost for the borrower.

In addition, the lending institution may sell after one year of giving a notice to default.

And if the lender sells the home at a surplus, the lender must give the borrower that money.

The minister said the bill has had widespread consultation.

“We continue to work hard to bring relief to homeowners who have mortgages and have fallen into difficulty. We face many challenges but we are committed to keep working to help as many as we can. We believe that this legislation is a positive step towards that end,” Minister Halkitis said.

The minister also spoke about the government’s much touted mortgage relief programme.

The government was told initially that 1,100 mortgagors could be approved through the programme.

However, banks only entertained 422 applications. Of that number 147 were deemed potentially eligible and only six were approved.

Minister Halkitis said the government continues to process appeals.

“To say that we are not satisfied with the outcome would be an understatement,” he said.

“We believed that it was a well thought-out plan which had as a prominent element working with the financial institutions to mutually agree on a plan. We have previously passed an amendment to the stamp act to extend the stamp tax exemption to homeowners who have lost a first home to foreclosure and are now seeking to acquire a second home. We have in committee the pension plans to access those savings to save their home.”

First to contribute to the debate from the Opposition was North Eleuthera MP Theo Neilly.

“While the Bill seeks to protects borrowers in the long run it might end up doing the opposite. Where financial institutions may become more careful and apply more scrutiny. As a result, if there are less loans or mortgages quite naturally there will be less construction thus less money circulating in the economy,” he said.

“So though the Bill seeks to help people, if we are not careful it may cause more harm,” he said.

May 23, 2013


The Bahamas mortgage crisis and the Homeowners Protection Bill in the Bahamian Parliament

The Bahama Journal

Caribbean Blog International

Bankers have expressed fears that the re-named Homeowners Protection Bill would result in The Bahamas’ own ‘credit crunch’ ...if passed into law as is...

Homeowners Bill Still ‘Shoots Risk Through The Roof’




By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

 

 

Bankers yesterday expressed fears that the re-named Homeowners Protection Bill would result in the Bahamas’ own ‘credit crunch’ if passed into law as is, with Tribune Business told there were no “material changes” from the first draft.

 

While no commercial bankers were prepared to speak openly yesterday, under condition of anonymity senior executives said the proposed legislation “fundamentally changes” the risk/reward calculation associated with lending.

 

This, Tribune Business was told, was largely due to the Bill giving the Supreme Court the power to intervene when commercial banks were attempting to realise exercise their power of sale on delinquent properties.

 

Further exercising commercial bank concerns is that the Bill plans to give the courts the ability to delay this process for an unspecified time period, creating huge uncertainty about the industry’s ability to realise mortgage security/collateral.

 

As a result, senior bankers explained, the risk associated with mortgage lending in the Bahamas would dramatically increase, with potentially huge implications for the wider economy - especially the real estate and construction industry.

 

Tribune Business understands that a meeting to discuss the proposed legislation, involving government representatives, the Central Bank of the Bahamas, the Clearing Banks Association (CBA) and members’ attorneys, and other lenders has been scheduled for today.

 

However, a copy of the Homeowners Protection Bill, which has been obtained by Tribune Business, is little changed from the first version - also seen by this newspaper.

 

That document was panned by many, including former minister of state for finance and Central Bank governor, James Smith, who is now a key Ministry of Finance adviser. The banking industry, which had expected the legislation to be radically revised, is also likely to have been disappointed.

 

“I don’t think there’s a material change in it,” one banker told Tribune Business. “What they are doing is allowing the courts to intervene in a transaction where the lender has assessed the risk and levied an appropriate rate of return.

 

“When there’s a borrower default, that’s already been priced into the rate, and you have some expectation as to what happens when there’s a default.

 

“But the Bill will allow the courts to determine what happens, which means the underlying risk fundamentally changes. Why would any lender enter into an open-ended contractual arrangement where the court can intervene and fundamentally change the risk in the middle of the contract?

 

“All these open-ended arrangements shoot the risk through the roof.”

 

The banking/lending industry’s concerns are focused on sections four-seven of the proposed Bill. Clause four allows the court to give a borrower relief “from consequences of the breach of a covenant or the non-payment of the principal or interest of the loan”, while number five gives borrowers time to “remedy” their delinquency when the lender is seeking to take possession of the property.

 

In particular, clause five allows the courts to prevent a lender taking possession of a delinquent property “for such period or periods as the court thinks reasonable”.

 

They can do this if they believe the borrower can pay sums due, or remedy, their default “within a reasonable period”. Both terms are short on specific, leaving everything to the court’s and judge’s discretion, and creating a nightmare of uncertainty for the banks.

 

Suggesting that the Bill’s drafters were likely unaware of the potential ‘unintended consequences’, one banker said: “What this is going to do is simply increase the risk of the lender.

 

“You are stuck with risk that you cannot manage, because in the event of default the courts can intervene, and you can’t charge a rate commensurate with the underlying risk.

 

“It’s all about risk and return. If you’re risk can’t be controlled and defined fully upfront, with all this uncertainty you will act appropriately.”

 

Essentially, with the risks associated with mortgage lending increased, and returns reduced, Bahamian bankers said there would be major ramifications for home lending in this nation.

 

Potential consequences, they added, included fewer persons qualifying for mortgage loans; higher downpayments and interest rates; and potential withdrawal from the mortgage market.

 

All were conditions for a ‘credit crunch, and the bankers said this would impact home ownership, the real estate market and overall prices, and the construction industry.

 

“Anything that increases a lender’s risk is going to be reflected in some other action, whether it’s an increased interest rate, smaller advances or withdrawal from the lending market,” one banker warned.

 

“Any combination of those things could apply, and it will not be good for the economy.”

 

The same banker also questioned whether the overstretched court system would be able to cope with potentially 4,000 delinquent mortgage borrowers.

 

Another banker added of the Bill: “There’s still a lot of gaps in it. It would not have the desired impact.” They suggested it would impact interest income, and solvency and capital ratios, creating problems in complying with international accounting standards.

 

Meanwhile, section six of the Bill proposes to allow courts to consider advance payments made by delinquent borrowers, while section seven permits them to give borrowers a period “of no less than 12 months” to make good their arrears under certain circumstances.

 

Other clauses exempt banks/lenders from paying Stamp Duty if they sell a foreclosed property within five years of granting the loan; give borrowers the right to choose their attorneys, appraisers and property insurers; allow borrowers to remortgage with another institution at no cost; and aim to prevent “excessive salary deductions”.

 

September 14, 2012

 

Tribune242

 

Caribbean Blog International