Fidelity ready to ‘put money behind’ bad mortgage cure

where its mouth is by investing its own money in a properly-structured distressed housing acquirer by purchasing any securities it issues.

Revealing that he has presented this concept to multiple administrations without success to-date, he said: “If you have a significant portion of properties in distress because people cannot make payments, those are on the banks’ books. Banks don’t really want to be property owners; that’s not our mandate.

“The bank doesn’t want persons coming in to inquire:

‘Can you sell me a home?’

They want to loan them money to buy a home. A non-performing loan has effectively been converted into a physical asset because you’re now in a state of saying you can only realise a recovery through the sale of the house. You’ve effectively become a property owner trying to sell a home.

“When there is a significant amount of capital tied up in non-performing assets it creates several issues for the banks.” Mr Bowe said Bahamian lenders, in taking over and repossessing distressed properties, and exercising their power of sale, are faced with hiring realtors, property managers and others to keep the real estate in its “maximum value state”. And “time and energy” from bank staff is also required to address the delinquent mortgage loans.

“If you have a tremendous amount of distressed properties with owners unable to pay for it, and which have tied up bank capital and, at the same time, have government expanding housing through building new properties, you have left a significant deficiency in your economic system,” Mr Bowe argued. “Building more homes only exacerbates the problem.

“One of the core elements that has certainly struck home for us is that the Government needs to be careful with new housing initiatives when we have such an inventory of distressed properties. It means that banks take possession, but have capital tied up in these properties. When you are building more new homes you are not resolving that issue; you are exacerbating that.”

Mr Bowe said his REIT proposal would help to eliminate the overhang created by distressed properties that are clogging up banks’ balance sheets, thus freeing up money for productive lending purposes once again while also getting more Bahamians into existing properties at an affordable price.

“The concept is how do you get the unproductive sector in the housing market productive again,” he added.

“There’s a couple of components. There’s capital. The banks have capital, but we don’t want to be in the business of property managers; we want to make loans. How do you attract persons wanting to invest in non-financial products like real estate?

If you have a structure that allows capital to be raised and buy distressed properties at a fraction of their value.

“We know the banks want to divest those properties because that’s not their business. We know there’s a need because the Government says there’s a housing shortage. The REIT effectively would combine supply and demand, saying here’s a supply of distressed properties and demand for distressed properties? How do I get these working together? The REIT allows me to acquire distressed properties at a fraction of their value.”

Mr Bowe said the “vast majority” of Fidelity Bank (Bahamas) current non-performing loan portfolio are mortgages, with “in excess of 30 percent” of that loan type now 90 days or more past due for payment. The Central Bank’s December 2022 report said 10.2 percent, or more than $1 out of every $10 tied up in outstanding mortgage loans, is delinquent, and the Fidelity chief estimated that the industry average for distressed properties is around 20 percent. Bahamas-based commercial banks have become increasingly skittish on mortgage lending since the 2008-2009 financial crisis, which resulted in hundreds of millions of dollars in mortgage arrears piling up on their books that took years to move due to the difficulties encountered in selling them on to new, qualified purchasers. This has left them more reluctant to extend credit for home ownership - the biggest investment most people make and a vital economic driver.

Mr Bowe, affirming that his proposed REIT would have to be autonomous from government and run on commercial principles, said there was sufficient room to acquire distressed properties for cents on the dollar, invest to upgrade them and sell at a profit while still enabling the buyer to access affordable housing at a discounted price. “We need to become more creative in getting money flowing in the banking sector,” he added. “If nonperforming loans are taken off the books of the banks, they will have an incentive to lend in the mortgage space more aggressively. It has the dual benefits of getting liquidity back into a non-performing sector of the banking industry but also getting persons into homes are more affordable prices.”

Mr Bowe said the REIT would also provide

Civil service wages to grow $77m in 3 years

FROM PAGE A24 who do so much for our country.”

Mrs Glover-Rolle added that the increased public sector wage bill aligned with the Budget’s funding, saying: “The Government confirms that the estimated annualised additional incremental costs associated with the completed labour agreements align with the relevant, related budgetary allocations for the current fiscal year.

“$20m was allocated for labour agreements in the 2022-2023 Budget. The Government remains committed to ensuring that all budgetary allocations are carefully managed and monitored, and that all expenditures are in line with the Government’s broader fiscal goals and objectives.”

As for the medium-term growth in the civil service wage bill, Mrs Glover-Rolle added: “The Government forecast growth in public sector wages over the medium term from $863.9m in fiscal year 2023-2024 to $941.7m in fiscal year 2026-2027.”

Elsewhere, the Prime Minister pushed back on the Opposition’s challenge as to why the 2022-2023 Budget’s projected deficit differed from that set out in last year’s Fiscal Strategy Report when the Fiscal Responsibility Act requires that they be “consistent”.

“There is no legal requirement that the annual Budget be an exact replica of the Fiscal Strategy

Report,” Philip Davis KC said. “However, the annual budget is consistent with the broader goals and objectives of the Fiscal Strategy Report, including the focus on deficit reduction.

“The Government remains committed to achieving its fiscal targets, and the Budget was formulated with this objective in mind. While the target deficit for the Budget may differ slightly from the targets established in the Fiscal Strategy Report, the overall strategy for reducing the deficit and achieving fiscal sustainability remains the same.”

And, dealing with the Opposition’s attack on the Government’s decision to eliminate the 10 percent duty on imported yachts

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To apply please send a CV and letter of motivation to admin@kingscollegeschool.bs outside the Parliamentary process, the Prime Minister said: “This category is not a significant revenue earner for the Government. If anyone looks at it, they’ll see it’s negligible or nonexistent. They don’t import their yachts to The Bahamas, and one of the reasons why is we have duty on yachts.” This, Mr Davis, added as a barrier to The Bahamas’ ambitions to establish a yacht registry “which we’ve [both political parties] been touting for many years. We consider it more useful for the purposes of creating a yacht registry to eliminate duty that we’re not collecting anyway because people are not importing their yachts”.

“The elimination of duty on yachts purchased and operated by wealthy individuals is an issue that has been discussed extensively by the Government and various stakeholders, and there is recognition that this policy can provide significant benefits to the maritime industry in The

Bahamas. However, to date, no importer has utilised this mechanism, and the Government will continue to examine ways to facilitate and grow the sector.”

Mr Davis also justified the Government’s position that elimination of this duty rate by “remission” was correct.

“However, to-date, there have been no qualifying imports, and thus the issue has not arisen in practice,” he added. “The Government remains committed to ensuring that all laws and regulations are applied appropriately and will continue to monitor and assess the situation as it develops.”

The Prime Minister also denied that the Government was required to lay the agreement for the $20m loan by Jamaican-based Proven Group, which was facilitated by local firm, Simplified Lending, in the House of Assembly because this was not a loan borrowed by itself or that it had guaranteed. Instead, the borrower was the Ministry of Housing via its function as a corporation sole, which

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flexibility and portfolio diversity through being able to enter into a variety of transactions other than the purchase of distressed homes and their resell. He added that social housing, rentto-own and leases were all other opportunities it could explore.

“We’ve even said to the policymakers that Fidelity would be prepared to buy bonds or mortgage-backed securities which the REIT may offer to help finance their acquisitions,” he told this newspaper. “It changes the risk profile. This is not an idle idea we have expressed if it’s appropriately structured with the right governance and right professionalism be brought to bear.

“It converts some of my current non-performing, non-income portfolio into new assets that are more diversified. It opens up opportunities for that market to move and my investment risk to change. It’s a bit of a snowball effect. If we can roll this snowball up the hill and get it moving we may be surprised at how big it becomes.” will be responsible for the loan’s repayment.

The loan is to finance the Government’s 365-lot Renaissance at Carmichael housing subdivision, and Mr Davis said: “The Ministry of Housing, being a corporation sole, is authorised to receive advances or loans from financial institutions, whether from the public or private sectors, to fulfill its mandate of developing homes. The ministry, therefore, obtained the necessary approvals and followed due process in securing the loan....

“The Debt Management Act does not apply in this case. The Ministry of Housing is a corporation sole. As such, the loan proceeds were deposited into the account of the corporation sole in accordance with the relevant regulations and guidelines.” The Prime Minister also asserted that a competitive bidding process was used to select Proven.

Turning to the hiring of Rothschild & Co as the Government’s debt advisers, Mr Davis said: “Rothschild and Company has been engaged in an advisory capacity by the Government to provide guidance and support in the international debt market. As one of the leading, highly-specialised, international financial advisory firms with expertise in debt management, Rothschild provides strategic advice to the Government on various aspects of its international debt portfolio.

“Advice includes the analysis of market conditions, identification of potential risks and opportunities, and the provision of recommendations on the most effective ways to structure and manage the government’s debt portfolio.

“The scope of work for Rothschild involves a detailed review of the Government’s current debt profile and the provision of ongoing support in implementing any recommended strategies. They are also brokering relationships with bond-holders and other market actors.”