JMB raising capital to buy up mortgages
Published:Friday | June 3, 2011 | 12:00 AM
- Sets J$35b target for secondary market
Avia Collinder, Business Writer
Patrick Thelwell, general manager of the Jamaica Mortgage Bank (JMB), is moving to liquidate assets of debtors whose accounts are in default, to help eliminate J$313 million of losses incurred last year.
JMB, a financier of developers, had provisioned J$275 million for bad debts that have been rising in the soft construction market weakened by the recession.
Referring to the impact on loan servicing created by problems in the construction industry, Thelwell said those assets used as security "which cannot be liquidated easily will be pulled in under the foreclosure laws and placed on our books."
At the same time as the state-run agency is cleaning up its loan book, the bank is positioning to take a more aggressive position in the secondary mortgage market, with its endgame being more affordable loans to buyers of mortgages.
JMB has also just completed another J$500 million private bond placement arranged by First Global Financial Services (FGFS), and plans to raise a similar amount of capital through another unnamed institution.
The two placements will increase its liabilities on bonds to J$2 billion, with Thelwell noting on Tuesday that his company chose this timing because the cost of capital was falling as interest rates decline.
The mortgage banker said while JMB's accounts for FY 2010-11 had not yet been audited nor tabled in Parliament, he expects the bank to make a profit of about J$130 million.
Under its nascent secondary market push, JMB is providing financing in J$100 million tranches : GSB and Churches credit unions are already on the programme, while distributions to COK Sodality credit union and Jamaica Money Market Brokers are pending.
The bank plans to purchase mortgages from issuing companies at the weighted average price of the pool held by individual private lenders, says JMB's website.
The bank has set aside J$5 billion to buy up mortgages from issuers, who will be encouraged to transform long-term loans to cash that can be used for additional loans.
In seven years, the general manager said Wednesday, JMB expects to buy up J$35 billion worth of mortgages under the programme, creating liquidity in the primary system and potentially cheaper mortgages.
In the short term he said, the bank was pushing for mortgage lenders to issue loans at interest rates of 10 per cent, which, when combined with National Housing Trust (NHT) funds issued to middle income buyers, could produce rates of 8 to 9 per cent.
"This will drive the housing market tremendously," he said.
"We are trying to drive rates down through competition."
The most recent bond placement through FGFS for J$500 million, which closed May 19, was a five year instrument with coupon rate of 7.85 per cent per annum. Returns from the bond will be tax-free.
"Over 30 accredited institutional investors bought ," Thelwell said.
The bank, which turns 40 this year, indicated in a related release that the target for FGFS was high net worth clients and brokers and that the bond was oversubscribed by 10.4 per cent. FGFS received $552 million worth of applications.
The general manager said negotiations were advanced with the Government of Jamaica over the aggregate number of tax-free bonds JMB could issue and that tenders were about to be go out for brokers to structure more private placements.
Thelwell declined to indicate the banks total loan portfolio, but the annual Jamaica Public Bodies report estimates it at J$1.7 billion or about 35 per cent of total assets. Its liabilities are expected to end the 2010/11 year at about J$3 billion.
JMB, which has a book value of an estimated J$1.9 billion, is being converted to a private company that will be regulated by the Financial Services Commission to ensure "adequate financing and prudent management."
Thelwell said the restructuring could be completed by December.