Foreclosures spike 2550%
Published:Sunday | January 29, 2012 | 12:00 AM
Correction & Clarification
Auctioneer William Tavares-Finson and realtor Edwin Wint were incorrectly identified. We regret the error
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Avia Collinder, Business Writer
The National Land Agency (NLA) said last Monday that there were 212 foreclosures last year, up from eight in 2010. That's a staggering 2,550 per cent increase. The rise is juxtaposed with increasing loan defaults in the downturn and falling sales at auction.
The most recent industry data from the central bank shows that underperforming loans have increased 46.3 per cent in the annual period ending September 2011.
Central bank regulated entities - banks, near banks and building societies - had just under J$28.9 billion in non-performing loans on their books at that date.
The NLA, where foreclosure applications are filed and approved via the registrar of lands, said that until 2011, foreclosures were rare in Jamaica.
There were eight foreclosures in 2010; two in 2009; and none in 2008.
But the agency declined to break out the data, as did various private mortgage lenders.
"We really only started to get serious about foreclosures in 2011 but the numbers are not as high as some people think," said one mortgage executive who spoke on condition of anonymity.
"The numbers are under 100," he said, referencing foreclosed properties.
Low auction sales
William Tavares-Finson, a top auctioneer, suggests that foreclosures have spiked because of low sales through the auction system.
The newspapers advertise scores of properties for auction monthly, but both Tavares-Finson and the mortgage banker said the number of ads can be misleading.
"I can't give you numbers for properties sent to auction because some properties were listed as many as four times in 2011. What is to be noted is that 96 per cent of property owners updated their accounts before the actual auction," the mortgage executive said.
Tavares-Finson said that between 2009 and 2011, the annual average for properties advertised for auction was just about 1,000.
In 2009, only 32 per cent made it to the block with 60 per cent withdrawn before the advertised auction date. Auction sales amounted to 2.3 per cent of the lot, he said.
In 2010, some 66 per cent of properties were withdrawn before auction, 23 went on the block, and sales were 1.5 per cent of advertised properties.
Last year, advertised properties declined by 12.2 per cent — 63 per cent were withdrawn before the auction, 30 per cent went on the block, and sales amounted to 3.9 per cent.
"From our perspective, the mortgage market is improving," the auctioneer said.
Tavares-Finson's auction house DC Tavares & Finson Limited last week again listed a number of commercial properties for auction - including Jobs Plaza in Hopewell, 5C Albion Estate in St Thomas, the Palms hotel in Negril, 28 Lancaster Road in Eastwood Park Gardens and two coffee farms in Portland listed as 59.66 acres in Mount St Bernard and Bangor Ridge.
But whether there were broadly more forced sales for commercial properties was unclear, he said.
"What is on the increase is the number of foreclosures, with the banks seeking to take these properties on their books, perhaps as per regulatory requirements by the central bank," Tavares-Finson said.
BOJ Provisioning Guidelines
The Bank of Jamaica (BOJ) said, however, that it does not require banks to "realise on" or dispose of assets backing bad loans, and that there are restrictions on the amount of fixed assets institutions are allowed to add to their books.
Instead, its provisioning guidelines stipulate how the loan should be written off the books of deposit taking institutions (DTIs).
Said Maurene Simms via email to Sunday Business:
1) At the point of classification or non-performance, the DTI is required to make an 'appropriate provision' on its assessment of the credit, covering at least one per cent of the entire credit exposure plus any excess shortfall in the value of the collateral backing the facility relative to the exposure;
2) If a DTI fails to realise on or dispose of collateral backing an NPL within nine months after the loan has failed to perform — that is 12 months since last payment — then the DTI is required to make a 50 per cent loss provision against the loan balance, regardless of the value of the collateral security held;
3) If realisation on or disposal of collateral is still not effected within a further six months — that is, 15 months non-accrual or 18 months since last payment — then the DTI is required to make a full provision against the entire credit exposure, regardless of the value of the collateral held.
Simms said where the lender forecloses on a loan that is secured by real estate, the DTI has three years to dispose of the asset acquired.
"Note, however, that the statutes provide that the DTI may apply to the minister of finance to extend the period for the disposal of such real estate," said the central bank official.
"There is no such time limitation on other types of assets acquired in the satisfaction of debt," she said.
The value of fixed assets held by BOJ-regulated lenders cannot exceed 100 per cent of their capital base.
Edwin Wint, immediate past president of the Realtors Association of Jamaica and CEO of La Maison Property Services Limited, says Jamaica's 212 foreclosures do not compare in volume to jurisdictions with the once-booming housing markets hit hard by recessionary conditions.
"Locally, there has been an increase in residential and commercial properties being or under threat of foreclosure over the past two to three years. This, however, is nowhere near the massive foreclosures experienced in the First-World economies," said Wint.
"The global recession has had a negative knock-on effect on investments in the global property market, and further, the negative effects on the local economy have percolated down to the domestic property market over the past two to three years."
Investments lost
The realtor said that some commercial property investors who were either highly leveraged or had too much real estate in their portfolios have lost their investments because of an inability to service their mortgages and other loans or were unable to refinance loans against their properties.
Jamaican law requires that confiscated real estate first be offered for sale at auction, and only if that fails can the property be foreclosed.
Scores of properties are being brought to auction, but the number sold by this means has been falling. Concurrently, foreclosure applications have increased.
"Where auctions were concerned, sales fell below the usual five per cent of portfolio to between 3.5 per cent and four per cent," said Tavares-Finson.
"For commercial properties, there is a very wide gap between interest and sales. A lot of the negotiations might be taking place afterwards," he said.
The top seller of mortgages in Jamaica, the state-run National Housing Trust, says its policy measures do not include foreclosures. The agency put up 326 properties for auction in 2010 of which 80 were sold by public auction and 70 by private treaty.