Minister: Mortgage rescue plan 'not effective'

Opposition leader says gov’t misses point

 

Eighty-two percent of the people who received loans from the Cayman Islands government’s former Save the Mortgage program between 2011 and 2013 have defaulted on their bank loans, Finance Minister Marco Archer revealed Monday.  

In addition, 62 percent of the 143 applicants approved for the government loan – about 88 households – defaulted on their government-guaranteed loans of up to $20,000, Mr. Archer said. Those defaults occurred despite a six-month grace period on loan repayments, with zero interest charged and up to a 50-year repayment period.  

“[These delinquency rates] clearly indicate that the Save the Mortgage program was not effective or did not have the effect that it intended,” Mr. Archer said. “The majority of applications have once again defaulted on their bank mortgages, despite receiving assistance from the government.” 

Mr. Archer’s comments came in response to a private members motion filed in the Legislative Assembly by Opposition Leader McKeeva Bush that urged the Progressives-led administration to intervene in what he called the worst cases of home mortgage default to “immediately set aside enough funds to address the most needy and worst cases to be able to save those houses involved.”  

Mr. Bush had indicated that the “worst case” scenarios of pending foreclosures could be assessed by meeting with local banks.  

“[The government] can’t sit back and say they have $120 million in surplus, which we [referring to the former United Democratic Party government] got for them, while people are losing their homes. It’s nonsense and it’s heartless.”  

The opposition leader said Mr. Archer’s response to the motion – criticizing the Save the Mortgage program created under Mr. Bush’s former government administration and funded with some US$2.5 million paid by Dart Realty Cayman Ltd. – entirely missed the point.  

“I left this [motion] wide open for the government to do whatever they could,” Mr. Bush said. “I didn’t ask them to do any Save the Mortgage program.”  

“I’m not ever surprised when I ask this government to do something because…they are going to get up to say ‘This is what you done, and this is how bad it was.’ I’ve listened to the excuses. It is the voice of Jacob, but it is the hand of Esau.” 

The last part of that statement is a biblical reference, apparently inferring that Minister Archer’s comments on the issue were being prompted by his party’s political leadership.  

Mr. Archer said U.K. requirements for government’s operating cash – agreed to by then-Premier Bush in 2011 – required Cayman to have 90 days of available cash or cash equivalents on hand by Dec. 31, 2015.  

While he didn’t speak out against the arrangement, the finance minister noted that the US$2.5 million provided by the Dart group for the Save the Mortgage program was less than the $2.71 million in affordable housing fee concessions it was granted as part of the National Roads Authority agreement under the For Cayman Investment Alliance deal.  

“This country has to be very careful as to the revenue that we collect and what we choose not to collect, because when you have sufficient reserves, you are much better able to react to the needs of your people,” Mr. Archer said. “When we make hasty decisions, we sometimes find ourselves looking back and wishing that perhaps we had not taken that path.”  

Mr. Bush said Cayman had become quite familiar with this line of rhetoric from the current government administration.  

“If it wasn’t that Dart was in operation today, 25 percent added to our GDP would be gone,” Mr. Bush said. “For 18 months we have languished in this assembly, in this country, with the same attitude that we just heard. I asked [the finance minister] ‘Did you go and check to see what the value that this $11 million…received in concessions [as part of the NRA agreement]?’ Is it $100 million [the Dart group] put in or what?” 

Mr. Bush said he had received no response on that from government.  

“Help Caymanians? No boy, that’s not what you’re doing,” Mr. Bush said.  

Marco-S-Archer-240

Mr. Archer

1 COMMENT

  1. While I understand what Bush is saying about people needing help and I do agree that the dealings with Dart were good for Cayman and should continue. I however do not agree with him on continuing to sink money into Mortgage bailouts in cases where people have still defaulted after receiving assistance. This just goes to show that they are living beyond their means and need to downgrade to a situation that they can afford. Government would be better off assisting these people with relocating to homes that they can afford to maintain. If you just keep bailing them out you will end up doing it forever and Cayman cannot afford to do that.

    He is also right about how the 11 million in concessions received so far by Dart has been portrayed. They are just trying to dirty the soil on this deal by not mentioning what Cayman got and would have received in return had things not been delayed by the new government. I am quite sure that this government will do what ever it can to make that deal look bad simply because it was orchestrated by Bush and I don’t think they care the slightest about what Cayman loses.

    The way they’re handling the dump issue proves this, to blow off an offer from any private party to fix the dump for free and believe it’s better for the country to spend over a 100 Million dollars to fix the dump is ludicrous. Millions have already been spent just to come up with a plan that they promised they already had. If the offer from dart been left alone the GT dump would most likely have already been cleaned up and Cayman would have a fresh start with the way they handle their garbage. The only thing I didn’t like about that deal was that it would have still left the CIG responsible for managing the new site, a responsibility that would be better off in the hands of the private sector. Just the fact that there’s still not even a basic recycling plan in place just goes to show their lack of ability to deal with it.

  2. Instead of bailing out people with cash the Government should pass a law that Foreclosed properties must be sold a fair market valuation rate and not at a discounted rate just recovering their debt on the property.

    Banks make people get a valuation when they get a mortgage and so charge the the cost of one on the foreclosed property and deduct that cost along with the bad debt cost then give back to the owner the balance of the sale, less as admin fee if required.

    In this way property owners retain the percentage ownership of the building, which was not covered by the debt and are fairly paid pay for that portion at the time of sale.

    It is criminal that banks who have less than 100% interest in the value of the property can discount the price to recover their full debt and leave the property owner out of pocket. If they discount the house price they should still split the funds based on the percentage ownership of the property in the same way insurance firms only pay out a portion if you are under-insured.

    Additionally banks should be required to have a cooling off period of six months to allow struggling customers to repay their short falling debt before going to foreclosure and these six months are just added to the length of the loan so the bank does not lose out.

    It is wrong for the Government to use tax payers money to bail out private citizen’s lifestyle choices as that will lead to higher taxation of responsible citizens to pay for the errors of the misguided ones.

    For once you allow people not to repay their government dues where do you stop when people don’t want to pay for any government fee and use the excuse that others got away with it!

  3. Instead of bailing out people with cash the Government should pass a law that Foreclosed properties must be sold a fair market valuation rate and not at a discounted rate just recovering their debt on the property.

    Banks make people get a valuation when they get a mortgage and so charge the the cost of one on the foreclosed property and deduct that cost along with the bad debt cost then give back to the owner the balance of the sale, less as admin fee if required.

    In this way property owners retain the percentage ownership of the building, which was not covered by the debt and are fairly paid pay for that portion at the time of sale.

    It is criminal that banks who have less than 100% interest in the value of the property can discount the price to recover their full debt and leave the property owner out of pocket. If they discount the house price they should still split the funds based on the percentage ownership of the property in the same way insurance firms only pay out a portion if you are under-insured.

    Additionally banks should be required to have a cooling off period of six months to allow struggling customers to repay their short falling debt before going to foreclosure and these six months are just added to the length of the loan so the bank does not lose out.

    It is wrong for the Government to use tax payers money to bail out private citizen’s lifestyle choices as that will lead to higher taxation of responsible citizens to pay for the errors of the misguided ones.

    For once you allow people not to repay their government dues where do you stop when people don’t want to pay for any government fee and use the excuse that others got away with it!

  4. Sam, What you are saying will never work. Bank are in the business of making money they are not government entities who have a responsibility of assisting people when they can’t pay their mortgages. If you default on your loan you lose your home and any rights to the equity in it, that they way the mortgage business works, the home if not your until it paid for. If the government were to pass the laws you recommend banks would stop loaning people money to buy homes because it would be to risky.

    What you describe would be like saying that if you own a home and have a tenant that has been renting it for 20 years has a financial interest in the home if you decide to sell it.

    You say that it’s criminal for a bank to foreclose on a someones home and sell to recover their loses. If it equally criminal to sign a contract to pay a mortgage and then not pay it ?

    I do agree with you that It is wrong for the Government to use tax payers money to bail out private citizen’s lifestyle choices, because that’s just what they are choices and every individual is responsible for the results of their own choices. If this mean losing the home you choose to buy and cannot pay for then the responsibility for this choice falls on you. Neither the bank or government is to blame nor do they have a responsibility to assist you with paying it.

    Banks have a responsibility to their shareholders and the people that trust them with their savings. People who get mortgages to buy homes have the responsibility of paying it back in a timely manor.

  5. Sam. I think banks have a fiduciary responsibility to ensure they get the best price for the property when they sell it. The borrower puts up the property as collateral, it’s not a shared ownership deal. If the amount owed is less than the sold price then the borrower gets the difference. The borrower always has the option to sell their property before the bank forecloses, and take any funds out once the loan is repaid, unfortunately if you are at this stage you probably owe more than it’s worth and happy to let the bank take the hit.
    Worked out in dollars, you buy a home for 500,000, borrow 400,000, 100k invested in it. Value drops to 400,000, you take out ‘your’ 20%, or 80k, bank gets the remainig 320k. You lost 20k on a bad investment, the bank lost 80k on the fall in value of your house, which could be because you didn’t maintain it or any number of reasons why it went down in price, and have no say in.

  6. Joseph is fairly close to the mark in that the ‘equity’ in the property is only the balance left between the market value and the unpaid proportion of the loan TOTAL – BUT remember that a 400K loan is not 400K repaid.

    In Joseph’s example if the the home is sold for 400K then the borrower has lost ALL his equity and more! – the bank gets the 400 less the principal value of the repayments made. Unfortunately in the early stages of a mortgage you will mainly be paying interest and the capital on the loan is mainly still there even several years in.

    So for a 400K loan, you may be paying back 633K over 20 years on a 5% mortgage! Even after 7 years you haven’t actually repaid any of the original 400K, just the 233K interest.
    i.e. after paying 333K you still have NO equity!

    That is why it is crucial to look at re-mortgaging if interest rates fall – refinancing the above example from 5 percent to 4.25 would save almost 40,000 dollars!

    The flip side is that in a volatile property market the value of a house can increase dramatically and that can allow a homeowner in crisis to sell and recoup his capital or to remortgage to lower monthly payments.

    It’s important to get good advice when things START going wrong. Most can be salvaged quite easily in the early stage but by the foreclosure stage there is no room for maneuver.

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