JMB sets pace for cheaper mortgage
Published:Friday | April 15, 2011 | 12:00 AM
The Jamaica Mortgage Bank (JMB) has officially reintroduced a secondary mortgage market for the first time since the 1970s, and is inviting financial institutions to come on board in an effort to increase by 4,000 the number of mortgage take up per annum.
Currently, when the number of housing units produced annually by the National Housing Trust are combined with those of other major developers and private builders, the sector is running a deficit of about 2,600 units per year.
Under the programme, JMB will buy mortgages from primary lenders such as banks, building societies and credit unions, then repackage them as mortgage-backed securities for sale to institutional investors.
The buying and selling of the mortgages provide the primary lenders with cash to pump into new loans.
Patrick Thelwell, general manager of JMB, explained that "coming from an analysis we have done on housing we think that if we bring mortgage interest rate down to about 10 per cent, the effective demand for mortgages will rise by about 4,000". He was speaking at the launch at the Terra Nova All Suite Hotel, St Andrew, on Wednesday.
But how soon mortgage rates will come down will depend on the pace at which treasury bill rates go down, he said. Average yield on Government of Jamaica treasury bills now trades at 6.45 per cent and 6.6 per cent for the three months and six months tenure, respectively. Thelwell is optimistic that bringing down mortgage interest rate could happen within a year.
come on board
He said that "what we are doing with this launch is inviting every single financial institution to come in and talk to us. But, of course, they have to be of a particular credit quality, so once it has a particular capital base and we are satisfied that it is worthy of lending and they have the structure in place to lend mortgages, then we will lend to them."
By lowering residential mortgage interest rates, the JMB expects to drive the demand for mortgages, and the supply of houses.
Thelwell said the funds JMB has to lend is not fixed, but would revolve under the secondary mortgage programme, and they are projecting to disburse up to $750 million for fiscal year 2011-2012.
According to Thelwell, the secondary mortgage market will improve affordability and contribute to the development of the debt market.
Horace Chang, minister of water and housing, who also spoke at the function, implored financial institutions to partner with JMB on the venture.
"The development of a robust secondary mortgage market will attract funds to the housing sector, paving the way for more mortgages to be issued at more affordable rates and will ultimately lead to greater efficiency," Chang said.
The minister said the national housing policy estimates that there is a housing finance need of about $100 billion per annum, but only $30 billion of that amount is supplied by the formal sector.
"The major challenge that we are faced with in the area of housing finance at present is that the pool is too limited and what is available is too expensive for the average Jamaican," said Chang.
"If we are to make mortgage financing more available and affordable, we will have to take a multifaceted approach, involving both the Government and private sector," he said.
quite sustainable
He added that the secondary mortgage market is not entirely new and was pursued back in 1970s but became dormant, the programme having been faced with a number of constraints.
However, the minister assured that the model now developed is quite sustainable.
Already JMB has partnered with Churches Credit Union and GSB Co-operative Credit Union, providing each institution with $100 million to onlend as mortgage loans to individuals.
Through both GSB and Churches, mortgages are now provided to borrowers at a rate of 11.95 per cent, the lowest in the market, according to Courtney Lodge, general manager of GSB.
In the next two months, the JMB said it also hopes to issue a $1-billion shelter bond to finance housing development lending.
The bonds issued, Thelwell said, are also expected to be listed on the stock exchange.
"What we expect is that, as the Government reduces the deficit, and no longer needs additional funds, and stops going to the market for funding, that the mortgage bonds will become an alternative for investors," said Thelwell.