|Govt abandoned key elements of original mortgage plan|
Guardian Senior Reporter
Published: Aug 17, 2012
The government abandoned several key elements of its original mortgage relief plan after negotiations with the clearing banks, Minister of State for Finance Michael Halkitis said yesterday.
In April, the Progressive Liberal Party (PLP) unveiled a 10-point plan to assist struggling homeowners.
Included in that plan were pledges to get local banks to agree to a 120-day moratorium on foreclosures and to write off 100 percent of unpaid interest and fees for those facing foreclosure.
In its original plan the PLP also said it would encourage banks to reduce the interest rate on the mortgages in question to prime plus one percent. The PLP had also pledged to guarantee interest payments for affected borrowers until 2017, if the banks agreed to their requests.
However, the plan presented in the House of Assembly on Wednesday by Halkitis did not include those elements. He said the PLP’s original plan to help homeowners was revised after “back and forth” talks with lenders.
“We announced a proposal months before the election campaign that we felt we wanted to propose,” he said, referring to the plan announced April 1.
“Foremost in our proposal was a commitment to consult with all of the banks and the other mortgage lenders to come up with a plan that we can both agree on, that we think can work, that can help people and be affordable for the government.”
He added: “We came up with the 10-point plan. After sitting with the banks they said ‘Okay let’s do this’.”
When asked if the banks were against the proposed 120-day moratorium on foreclosures and 100 percent write off of interest fees, Halkitis said, “I wouldn’t say they were against it. We had our talks and this is the proposal that we were able to agree on.
“I’m not a lobbyist for the banks, but they have done a whole lot of restructuring themselves. We are comfortable with this plan.”
He added: “They are not going to write off 100 percent of the interest.”
The mortgage plan attracted criticism from international credit ratings agency Moody’s days into the new PLP administration.
Moody’s worried that the plan would create an element of “moral hazard” in the financial sector because people would stop paying their mortgages.
Halkitis said this fear of a moral hazard prompted the government to include stipulations in the plan.
He said other elements of the PLP’s original plan are included in the draft form of the Borrower’s Protection Bill, which has not yet been tabled in Parliament.
He said the bill has been circulated to lenders to get their opinions and may be changed based on their input.
“We circulated the bill to them and they came back to us with some ideas. We are going to sit down and have further consultations with them and come up with something that everyone can live with,” Halkitis said.
In order to be eligible for the final plan the government came up with, applicants must occupy a primary residence; the mortgage must have originated prior to January 2009; the outstanding mortgage amount can not exceed $500,000 and the applicant has to have had an acceptable credit history prior to June 30, 2008.
Additionally, the loan must be delinquent due to documented financial hardship caused by involuntary unemployment, under-employment or chronic illness; the mortgagors must have sufficient, sustainable documented and verifiable income to support the restructured payments and the lender must have a valid first and possibly second charge mortgage.
The property must be clear of other mortgages, liens or encumbrances.
In Parliament, Halkitis also said the government will contribute an amount equal to one third of the difference between the actual mortgage balance and what the client can service, up to $7,500, to permanently reduce the balance of the deferred loan and the client's total mortgage debt.
Halkitis said the lender would rewrite the remaining difference as a separate loan at zero percent for up to three years.