KINGSTON — Up to 4,000 more Jamaican families will each year have the opportunity to own their dream home, with the assistance of the Jamaica Mortgage Bank (JMB), through its Secondary Mortgage Market (SMM) facility, which was launched Wednesday April 13 at the Terra Nova Hotel, Kingston.
The SMM is a mechanism that provides liquidity to mortgage originators by allowing the purchase of existing mortgages, thereby providing new funds to these originators for the granting of additional mortgages. The loan agreement will benefit members of credit unions and other financial entities, allowing them to access more competitive mortgage rates.
According to the JMB, the Government facilitation of tax free status on some $2 billion worth of bonds, and the implementation of the Jamaica Debt Exchange, which helped to lower interest rates, are two developments, which has enabled the bank to restart the SMM, to provide low cost funds for onlending through building societies and credit unions.
Addressing the launch, General Manager of JMB, Patrick Thelwell, said that by lowering residential mortgage interest rates, the JMB expects to drive the demand for mortgages, and the supply of houses.
“We have to fundamentally increase the demand for mortgages, and we have to provide mortgages for people who would not otherwise be able to access mortgages…the benefits are far-reaching and tremendous, not just for the mortgage markets, but the financial markets as well,” he pointed out.
The General Manager noted market development as one of the benefits of the SMM programme, explaining that the primary and secondary mortgage markets have a symbiotic relationship, as both are important to each other.
“What we want is to increase the number of players in the primary mortgage market, increase competition there, and drive demand,” he said.
Mr. Thelwell pointed to maturity matching as another positive.
“What we have been doing over the years in Jamaica is taking short term funds – savings that are demand funds – and matching that with a 25 to 30 year mortgage…that is a serious gap issue – what we are trying to do is shift that, to let longer term savers, term long term mortgages, so we get better maturity matching,” he explained.
The SMM also allows lenders to benefit from servicing.
“Eventually what we hope to achieve in the market is specialized institutions, to increase the efficiencies in the mortgage market – we are at the early states and we expect to continue to see that development,” he said, adding that lenders will be able to lend funds to persons with lower salaries, increasing the number of qualified applicants, based on debt service ratios.
“Fundamentally credit risk is about knowing the person you are lending to, and one of the things we find (for example) is that credit unions are the ones that best know their members, and are best members to carry out a credit analysis on that particular member – so what the mortgage bank wants to do is to allow potential home owners to go to their institution of choice, to choose their mortgage, and not just go to the few institutions now that does mortgages,” he outlined.
The SMM programme will also improve affordability, and contribute to the development of the debt market. “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 bank bonds will become an alternative for investors,” he said.
There are a number of criteria for accessing funds under the programme.
“The financial institution will submit an application to the us, we will review it, and we decide whether or not we make a recommendation to our board…we have to make sure that we do proper due diligence and be able to defend any position that we take to give credit to a particular institution,” Mr. Thelwell explained.
The property must be residential and owner occupied, and must be insured. The maximum loan secured by the property cannot exceed $15 million, and the maximum loan to value ratio is 95 per cent, with a maximum amoritization period of 30 years. However, loans for up to 40 years may be allowed at the discretion of the JMB.
“Fundamentally for us, the mortgages that we buy have to be at absolute superb quality, because we want to make sure that when we go to the investors, they have no doubt about the quality of the underlying security that we are selling,” Mr. Thelwell stated.
“Government is not giving us a concession for us to help somebody to buy three or four homes…the concession is for first time home owners,” the General Manager stressed.
The JMB, established in 1977, is now onlending capital credit funds through credit unions such as the GSB Co-operative and Churches Credit Unions, as low as 11.5 per cent to borrowers.
“This is the best rate that is in the marketplace, what we expect is to drop those rates to 10 per cent, or lower, (but) what we are looking for is the competition in the marketplace to drive that rate down,” Mr. Thelwell stated.
By ALPHEA SAUNDERS, JIS Reporter