The Bahamas Mortgage Corporation (BMC) is at risk of becoming insolvent, and if it does, it will take the whole country down with it.
Its chairman, Dr. Duane Sands, said for too long Bahamians have viewed the corporation “as a donkey to ride”. He revealed to Guardian Business the latest numbers that chart a possible collapse in the housing market.
As of January 2012, Sands reported a sinking fund deficit of $92.7 million. Between now and 2020, he said $21 million worth of bonds are set to mature. And from 2021 to 2030, a whopping $115 million worth of bonds must be paid out to investors, not including interest.
Considering BMC earns $2 million per month, Sands told Guardian Business that based on current trends, the corporation will collapse when it comes time to pay the piper.
“So many people thought we would never reach judgment day,” the chairman said.
“For all intents and purposes, we have been running a Ponzi scheme. My position is we have to acknowledge where we are because of the decisions we have made. We can scream and shout about how we got here, but we are here.”
The chairman’s story on how BMC arrived here begins in early 1997 and spans until 2007. The corporation took part in a “huge explosion” of housing, with 1,300 homes built during this period of time.
“The problem is it was done by accruing huge amounts of debt and increasing the exposure of the mortgage corporation,” Sands explained.
As the boom continued, it became less and less likely BMC could repay these debts once the music stopped.
BMC issued large numbers of bonds, he said, to pay for the loans and take care of the interest. Sands called it “an environment of fiscal indiscipline and chaos”, to the point where the corporation had to constantly ask if the banks have any deposits to share.
Based on this legacy, Sands told Guardian Business the corporation is presently $117 million behind where it ought to be.
“One of the things that is very clearly to me, is Bahamians have looked at the Mortgage Corporation as a donkey to ride. That means, most people looked at it as a place where they could get money without consequences,” he said.
The chairman explained his office has endeavored to look at the fiscal realities with honesty and transparency. Scanning the dozens of foreclosures appearing in the newspapers on any given day, he said The Bahamas must now deal with this crisis much like the U.S. has been forced to grapple with the sub-prime housing crisis.
One area of concern, Sands said, is the need to right the size of valuations for mortgages. Millions of dollars worth of assets are still on the books that long went into default.
“But if assets are in default, you have to write them off,” he said.
The current situation is hardly business as usual, he added, and the approach of mass foreclosures by financial institutions cannot continue in a conventional sense.
“The decisions made then were unfortunate,” he said. “It was one big party. As you look through these reams of foreclosures, the question is should it be business as usual or a different strategy.”
Source: The Nassau Guardian
