Greater protections needed for struggling homeowners

Dear Editor,

Recently, former Central Bank Governor James Smith urged commercial banks to sit with the government and discuss ways of providing mortgage relief to tens of thousands of unemployed Bahamians struggling to meet mortgage commitments.

According to a report in The Nassau Guardian by Senior Business Reporter Paige McCartney on Thursday, September 10, Smith advised: “It’s in the bank’s best interest as well, because if they (borrowers) don’t pay back because they don’t have it, then you have to write off the loan in any event, but if they are re-employed, they have prospects somewhere in the near future and they will be able to service their loans.”

In March, the Central Bank of The Bahamas made special arrangements with the commercial banks and credit unions for a three-month loan deferral for borrowers adversely impacted by the COVID-19 pandemic.

However, those arrangements ended in June. As I understand it, interest rates on mortgages and consumer loans continued to run during this so-called grace period. Figures released by the Central Bank in June showed that nearly $2 billion in loans held by Bahamian credit holders had been deferred during the three-month period.

Smith, in the article, referred to the fact that the local economy is reopening in stages and that many of the major hotels have indicated that they hoped to be up and running near the end of this year. In light of all this, Smith suggested that “it might be useful for some dialogue between the government and the banking sector to really ask them to extend the repayment of loans and mortgages until the people are fully engaged again, so they won’t have that burden”.

But are the banks prepared to relieve consumers of that burden?

In the same report in The Guardian, it was indicated that Finance Minister Peter Turnquest said on an earlier occasion that the government had difficulty in getting some entities to formally enter into wholesale agreements for the deferral or forbearances of various loan payments and insurance premiums.

It is indeed a curious position for the commercial banks to adopt in a time of national crisis and massive unemployment.

Thousands of homes and businesses are in jeopardy of being sold by the banks. All those persons against whom possession proceedings are started, run a very serious risk of homelessness. Yet, the banks seem prepared to wield their powers of sale in a merciless fashion, caring very little for the pain and suffering of thousands of Bahamians who find themselves behind on their monthly bank payments.

In 2017, the Homeowners Protection Act was passed after a wave of repossessions and complaints against the behavior of lending institutions, particularly the commercial banks. At the time of the passage of that piece of legislation, there were some $529 million worth of delinquent mortgage loans outstanding.

Stripped to its bare essence, the act compels lenders to sell distressed properties at “market value” and outlawed the sale of repossessed properties to staff of the banks or their relatives, for example, a bank manager’s cousin.

It also requires lenders to give delinquent borrowers 30 days’ notice before either invoking their power of sale under the mortgage or seeking a court approved foreclosure.

The courts under the act could compel a bank to postpone a sale of distressed property for a “reasonable time’’, without defining what a reasonable time means. This was one of the criticisms aimed at the act by Sir Franklyn Wilson, Arawak Homes’ chief, shortly after its passage. Fair enough.

While the Homeowners Protection Act was a very commendable piece of legislation, in my humble opinion, it did not go far enough. For example, instead of prescribing the postponement of the sale of distressed property for a “reasonable time”, why not simply impose a one year ban on banks before they could move to sell distressed properties?

Let’s say you borrow $200,000 from a commercial bank to build a home. The loan is repayable at $1,000 per month and the mortgage deed provides that the moment you fall into arrears, let’s say, six months’ worth of payments, then the entire mortgage debt is immediately repayable.

Let’s say again that the life of the mortgage is 25 years. You have faithfully made payments for the last 20 years and suddenly you fall into financial difficulties due to the COVID-19 pandemic.

Pray tell me how is it fair and just for your bank to suddenly turn on you and demand repayment of the full loan balance or threaten you with court proceedings?

The same applies to businesses that are struggling in this pandemic, although the Homeowners Protection Act does not apply to businesses owners, who are also in urgent need of protection.

How is it that, despite your equity in the home, which in many instances is more than the amount owed, the bank is so anxious to sell your home? It is most unjust.

The act should be amended to say that all banks and lending institutions must wait a full year before exercising a power of sale under a mortgage deed. In the meantime, borrower and lender should be required to make genuine efforts to come to alternative payment arrangements.

As I understand it, the act does not give the court the power to deal with extortionate credit bargains, which, in my opinion, some banks are potentially guilty of through unreasonable interest rates. The courts should be given a clear power to, in effect, rewrite the mortgage agreement between the lender and borrower.

In the recent past, it used to be that if you borrowed a sum of money at X percent interest rate, you were required to pay X percent interest rate for the life of the loan. It was a fixed rate. But today, with variable rates of interest, in my view, the consumer is put at a distinct disadvantage.

Thousands of Bahamians are being threatened with homelessness precisely because commercial banks refuse to offer genuine relief. They are in a mad dash to the courts to deprive Bahamians of a roof over their heads.

What a pity, particularly during this time of acute financial trauma for most families and businesses. Landlords are, in most instances, being pressured by the banks and are, in turn, forced to turn tenants out of their apartments.

It is easy to appreciate that banks, like any business, are profit motivated. It is easier to see that the availability of finance is related to a substantial extent to its cost, and that the cautious attitude of lenders and financial investors reflects a proper regard for prudent fiscal management. All of this is true and I am certainly not arguing in this letter for the careless and spendthrift borrower.

But surely, financial institutions, which have reaped huge profits in this jurisdiction over the decades, must be in a position to respond to the unexpected, temporary adverse cash flows of borrowers who have faithfully met their financial obligations to the banks over many years. Parliament must step in to ensure a level playing field.

Thousands are jobless, stressed and depressed. Surely, the banks cannot afford to appear to be collecting the spoils of war, as it were, in this present economic climate.

Finally, I’m reminded of a scene painted by Plutarch in his book “Makers of Rome”, when the discontented poor rose up against the privileged rich in ancient Rome.

“They did not attempt any violence or revolutionary action, but merely shouted aloud as they marched along that they had long been driven out of their own city by the wealthy classes,” Plutarch wrote.

A frightened Senate, alarmed at the people’s protests, sent out one of their own, who was reasonably acceptable to the people, to try to appease the masses before revolution and bloodshed broke out.

“Their chief spokesman was Menenius Agrippa. He began by appealing to the people to come to terms; next, he put before them a frank defense of the Senate’s position, and he concluded his speech by a well-known fable: Once upon a time, all the parts of the human body revolted against the belly.

“They accused it of being the only member which sat idly in its place and contributed nothing to the common good, while the others suffered great hardships and performed great service, all for the sake of keeping the appetite supplied. But the belly only laughed at them for being so simple as not to understand that while it received all the body’s nourishment, it also sent out again and distributed it to every other organ.”

To the commercial banks I say, make your profits, but please ensure that others benefit.

Mark Symonette-Rolle, LLB, LLMV

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