Foreclosures increase as mortgagors default

... But NHT not on board, says  option too costly

Avia Collinder, Business Writer

Private mortgage companies have stepped up foreclosures to secure clear title to mortgaged assets in settlement of bad loans, but the National Housing Trust (NHT) is refusing to go this route, saying it will continue trying to sell confiscated assets and share the proceeds with mortgagors after the debt has been cleared.

A property once foreclosed becomes an asset of the mortgage company.

Foreclosures are administered by the National Land Agency (NLA) via the registrar of lands, but until this year, the measure was rarely used, according to the agency's communications officer Adrienne Mullings.

So far this year, January 1 to February 28, there have been 15 foreclosures, compared to two in 2010, and a total of eight in 2009.

"It appears that there were none for 2008," said Mullings.

The foreclosure requests are filed primarily by building societies, which can only go this route after exhausting efforts to sell the property.

The more drastic step coincides with growing levels of non-performing loans — NPLs — on the mortgage companies' books since the financial crisis hit in 2008.

Peter Reid, senior vice-president and chief operations officer at Victoria Mutual Building Society said Thursday that NPLs for his company are close to the industry average of 6.8 per cent of loan portfolios last reported by regulator Bank of Jamaica. The central bank oversees four building societies - two that are member-owned, Victoria Mutual (VM) and Jamaica National; and two owned by banking groups Scotia Jamaica and FirstCaribbean.

foreclosures expensive

Victoria Mutual had J$29.12 billion in mortgage loans at December 31, 2010. Reid said that only a few of the mortgage accounts in default are being considered for foreclosure. It costs the company about J$300,000 to foreclose on a property, he said.

Citing reasons why foreclosures are rare, aside from the cost, the VM executive said usually, mortgage holders are able to restructure their loan long before the option is even considered.

In three years, since 2008, non-performing loans in the building society sector have more than doubled, from J$2.76 billion to J$6.02 billion.

Attempts to secure information on the number of mortgage accounts in default and the potential for more foreclosures in 2011 were not successful.

The NHT, however, has 14,858 accounts in arrears for three months or more valued at over J$1 billion as at mid-year 2010.

The agency, which dominates the mortgage sector in loan volume and value, referred 326 mortgaged properties of the 87,252 accounts in its portfolio for auction last year, of which 80 sold by public auction and 70 by private treaty.

"The trust does not foreclose on properties. Instead, the trust seeks to sell indebted properties for as close to market price as possible, and after deducting the sums owed and costs incurred by the sale, transfers any balance to the mortgagor," NHT said in written response to Sunday Business queries.

A property is referred to auction after the mortgagor has been issued several arrears notices in 30-day, 60-day, and 90-day cycles.

"After all efforts to help bring the mortgagor into good standing have been exhausted, the trust will pursue recovery," the agency said.

Sale by public auction, it added, is a less costly procedure than foreclosure, which incurs a series of charges for demand notice advertisement; auction costs, including advertisement, sale commission, legal fees; transfer costs, including legal and government fees such as registration, stamp duty, and transfer tax; costs associated with valuation and/or surveyor's identification reports where applicable; GCT where applicable; and other miscellaneous fees such as telephone calls and letters of possession, some of which are calculated as a percentage of the sale price.

Reid of Victoria Mutual says the take-up on houses sent to auction is low, at about 20 per cent, with better response of 40 per cent take-up for private treaty offers.

mortgage rate down

Victoria Mutual now sells new home mortgages at 12.5 per cent per annum, down from 13.5 per cent in 2009, and will also be reviewing existing homeowner rate of 13.99 per cent downwards to see if the challenges relating to loan servicing can be "ameliorated," Reid said.

Foreclosures are administered under Section 109 of the Registration of Titles Act.

In order to obtain NLA's permission to foreclose, Mullings said, "Evidence that the land was offered for sale should be clearly stated and certificate of the auctioneer submitted".

"A mortgage company will only apply for a foreclosure order if they have been unsuccessful in selling the land at public auction," she said.

The NLA says the mortgagor must have been notified of the default, and that payment of the debt can halt the foreclosure proceedings.

austanny@yahoo.com