Senate Passes Mortgage Insurance Act

The Senate, on Thursday, December 4, passed amendments to the Mortgage Insurance Act, aimed at making mortgages more accessible for persons seeking to acquire a home.

The Bill seeks to increase from 90 per cent to 97 per cent, the percentage of the appraised value of the property on which mortgage indemnity insurance is granted; and to vary the percentage of the appraised value by way of Ministerial Order.

In opening the debate on the legislation, Minister of Justice, Senator the Hon. Mark Golding, noted that the amendment is expected to have a significant effect on Jamaica’s housing sector.

“This is part of the administration’s deliberate efforts to make access to home ownership more realizable,” Senator Golding said.

The Mortgage Insurance Act was last amended in 2008. That amendment facilitated the writing of more mortgage insurance policies, by increasing the amount of insurance that could be issued by the Jamaica Mortgage Bank (JMB) from $1.2 billion to $2 billion.

The Justice Minister noted that despite the 2008 amendment, the mortgage insurance fund is still being underutilized.

He informed that, as at the end of October 2014, there were 4,625 outstanding policies written by the Mortgage Insurance Fund covering mortgages valuing over $3 billion.

“This compares with the provision of mortgage credit risk insurance of some $642.97 million, which is a bit less than a third of the total $2 billion of insurance capacity available,” Senator Golding said.

The Justice Minister commented that it is the Jamaica Mortgage Bank’s view that the amendment will increase usage of the product and make mortgages more accessible to the average Jamaican trying to acquire a home.

“It is evident that the relatively large deposit that is currently required when one is purchasing a home, together with the additional closing cost incidental to the purchase of a home, are major hurdles faced by Jamaicans in their efforts to acquire a home,” Senator Golding said.

Under the legislation, a prospective purchaser will be required to find three per cent of the price of the house as down payment, plus an estimated two per cent closing cost for an overall equity input of five per cent, exclusive of the relevant duties.

“This compares to current down payment requirement of 10 to 15 per cent plus closing cost of two per cent, which is out of the reach of most Jamaicans,” he said.

He further informed that the Jamaica Mortgage Bank estimates that the Bill’s amendment will result in an increase of policy insured by some 15 to 20 per cent.

On average, the Mortgage Insurance Fund insures 20 to 25 per cent of the mortgage amount offered by the financial institution that provides the mortgage.

“With this proposed change, that coverage will be between 20 and 32 per cent. As prudence will dictate, the Jamaica Mortgage Bank will retain the flexibility to examine each application on a case by case basis,” Senator Golding said.

He noted further that the amount loaned and insured will be based on the assessed risk of the borrower to ensure that there is no increased risk to the fund.

Senator Lambert Brown welcomed the legislation, noting that it was a timely and a wise move by the Government.

The Bill was passed in the House of Representatives, on Tuesday, November 11.