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."