By NEIL HARTNELL Tribune Business Editor THE BAHAMAS Mortgage Corporation's (BMC) existing policy underestimates loan loss provisioning by more than $71 million, it was disclosed yesterday, its chairman unveiling an ambitious plan to cut delinquencies by almost half to 20 per cent within two years. Detailing the BMC's unsustainable, perilous financial position in a powerpoint presentation to the Senate yesterday, Dr Duane Sands, its chairman, said that to transform its condition it would need to call on the Government Loan Guarantee that exists under the mortgage insurance policy. That, effectively, will likely mean a taxpayer bailout of what is the Government's low-cost housing programme at a time when the fiscal purse is already under severe strain as a result of the recession and persistent deficits. However, the alternative, as Dr Sands implied, would mean an end to any further government-sponsored housing developments in the Bahamas, potentially denying many low and middle income Bahamians the ability to own their own home, Detailing the options for restoring the BMC to some measure of financial health, Dr Sands said: "These options reveal that some combination of calling on the Government guarantee on the loans is the only option available to the BMC. "The option to 'do nothing' is clearly not fiscally reasonable, and the annual extraordinary subvention (required sinking fund contribution), which is shown in the last option, is not realistic.... The options clearly show that by acts of omission, commission or otherwise, the financial affairs of the BMC were not managed in a prudent manner." Dr Sands contrasted the BMC's existing loan loss provisioning policy with that required under International Financial Reporting Standards (IFRS). Under the former, the 100 per cent state-owned Corporation had total loan loss provisions of just $1.25 million, giving it total assets of $229.535 million and total liabilities of $156.976 million This gave the BMC some $72.559 million in net assets. Yet, under IFRS standards, the BMC's true loan loss provisions should be $72.439 million. This resulted in total assets of $158.346 million, and total liabilities of $156.976 million, giving the Corporation a net asset position of just $1.37 million. Dr Sands said the BMC had consistently financed its operations with debt, in the form of bond issues, as opposed to relying on its own capital and cash flows generated by mortgage repayments. Yet while the BMC had managed to reduced its loan portfolio arrears from 42.5 per cent in February 2010, these remained extremely high at 39 per cent as at end-December 2011, explaining why it could not fund its operations from cash flow. Dr Sands, though, said that as part of the recommended solution to the BMC's financial crisis, the Corporation was seeking to maximise loan repayment collections "while pushing delinquency rates to less than 20 per cent within two years". Other components are more selective mortgage writing, in a bid to minimise risk, and working with the Ministry of Housing to limit housing development projects to an agreed amount. "The number of houses built is to be determined by fiscal reality," Dr Sands said. He added that the BMC, in seeking to determine its cash balances as part of the audit exercises for the years 2007-2010, discovered $1.874 million in bank accounts of which it had no record.