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Lenders urged to be more flexible by woman who could lose her home

The Bermuda Monetary Authority is examining mortgage judgment debt practices, in a bid to ease pressure on homeowners left with foreclosure debts.

However, for one mortgage-embattled resident, any changes to the law will come too late as she has opted to sell off her home privately, at an anticipated “huge loss”.

The BMA remarks followed calls for the Authority to adjust interest rates that can leave consumers overwhelmed with debt in the wake of foreclosesures.

A BMA spokeswoman explained that the rate of interest established in the original mortgage agreement is set by the lending bank alone.

However, the statutory interest rate of seven percent charged on judgment debts, which is set by the Interest and Credit Act, 1975, could possibly be adjusted.

“The BMA has the power to change this rate by order,” the spokeswoman said. “The court orders can cover a wide range of debts, including mortgages.

“Typically, if a party takes a matter to Court regarding an outstanding debt, the Court will impose the seven percent interest rate unless it decides otherwise.

“The Authority has identified the issues that have arisen recently in relation to that, and the matter is currently under review. We are consulting with relevant parties locally and are actively working to reach a conclusion, given the prevailing conditions in the local economy.”

The shift in stance was commended by lawyer Keren Lomas, who has spoken out on the BMA’s power to ease the financial pressure on homeowners whose mortgages have turned bad.

“It’s correct that the banks set the interest rate in the mortgage deed,” Ms Lomas said. “But after the property has been sold by the bank, the mortgagor is left with a huge residual debt owing to the bank, and the bank takes judgment in this sum.

“That is the sum that carries interest at seven percent I am very heartened to hear that the BMA is now consulting with the relevant parties.”

Banks typically stress that foreclosures, or forced sales, are a last resort measure when mortgage holders fall behind in their payments.

For one family, who must sell off their home just a year and a half after they bought it, lenders still aren’t accommodating enough.

Requesting to remain anonymous, she said: “The banks just aren’t budging and they really need to be more flexible, especially since that particular industry was the root cause of all this havoc offer lower interest rates for those on the verge of going under before it happens.”

The family’s agent, she said, is reluctant to see their house put up for sale in a stagnant market, but the family would rather take the loss than end up foreclosing. It is expected to take at least a year to sell.

“We’ll take a huge loss, but we want to sell up and move overseas,” she said. “The last thing we want to do is default.”

The couple, who have two young children, bought their house in September, 2010, just as the economic chill started to bite in Bermuda.

Interest rates rose a month later, adding $250 a month to their mortgage payments.

The homeowner’s parents are accommodated in the downstairs apartment, she said, but after her father suffered a stroke, she refused to take rent money from them due to their high medical bills.

Then, she added: “My husband’s overtime was cut.”

She said she had explained her predicament to her bank, hoping they could come to some new arrangement.

“I was told that as long as we are keeping up the mortgage payments, they will not consider assisting,” she said. “I further explained that although we were making the payments, they come with real sacrifice and we needed a bit of flexibility.

“I was told that until we actually fall delinquent, there is nothing that can be done and any amendment to our terms would result in a higher interest rate.”

Stuck eating “leftover dinner for lunches”, she said the family met repeatedly with bank representatives, who told them to “kick my parents out and rent out the apartment”.

“We explained this was not an option, as they helped us purchase the house, and further explained that I receive a subsidy payment every six months, which decreases my mortgage by approx $26,000 per year. We were denied on the basis that our situation didn’t look like it would improve.”

The family’s request for interest-only payments for a few months, to allow them to accumulate some cash, was turned down.

Trapped by a convergence of financial pressures and faced with an imminent default, she said she and her husband felt they had little choice but to put up their house for sale, taking “a huge loss as a result”.

“Not only will my husband and I need to start over,” she said, “but my retired and suffering parents put their entire life savings into this house so that we could all be together. Sad times indeed.”

Are you feeling the mortgage crunch? E-mail jbell[AT]royalgazette.bm.

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Published March 02, 2012 at 1:00 am (Updated March 02, 2012 at 8:16 am)

Lenders urged to be more flexible by woman who could lose her home

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