Divestment of the Jamaica Mortgage Bank is on the cards

BY AVIA COLLINDER Business reporter collindera@jamaicaobserver.com

Tuesday, July 05, 2016

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In the past, mortgage market stakeholders have expressed more interest in the divestment of the National Housing Trust (NHT) – the largest housing provider – than in the current proposal to divest the Jamaica Mortgage Bank (JMB). Nevertheless, it is the JMB which the new political administration has placed on the table.

Comments solicited by the Jamaica Observer on the pending divestment of JMB did not get a response from industry members. The Development Bank of Jamaica (DBJ), where the government’s divestment unit is headquartered, told the
Business Observer that it is awaiting instructions from Jamaica House on disposal of the company, which was announced during budget presentations in May.

In contrast to the cash-rich NHT, the JMB is staging a comeback from several years of losses due partially to borrowers who have collected funds and then decided not to repay.

The Bank recorded a loss of $89.1 million for fiscal year 2013/2014, the last available report. This compared to losses of $46.2m in the previous year.

Total assets at fiscal year end were $2.8 billion or $351 million less than the previous year, attributable to repayment of $500 million of shelter bond maturity and netted by a re-issue of $250 million.

CEO of the bank, Courtney Wynter, said this year that the agency has a strong pipeline of housing projects which – including deals already closed and those pending – should near $5 billion.

In 2015 JMB was also a lender in the student housing project with 138 Student Living Ltd, which has created greater housing availability for overseas students seeking to study at the University of the West Indies Mona, and University of Technology ,Jamaica.

The Bank is additionally seeking to collect monies owed, which at last report were nearing $700 million. Targets set for 2014/15 included the intent to strengthen the loan assessment process to reduce new non-performing loans.

The Bank also announced its intention to reset its lending rate to be competitive in the market and write commitments of $1.1 billion and disbursement of $1.0 billion for an estimated 320 housing solutions.

Then chairman Howard Mollison said in his report for the year ended 2013/14 that it was the agency’s intention to convert 80 per cent to 90 per cent of assets to earned assets, including selling all land held for sale. This will supplement any funding the Bank will be able to obtain in the private marketplace.

Mollison promised a "laser-like focus approach to our delinquent portfolio to recover in excess of $644 million of non-performing loans", which could strengthen the Bank’s liquidity and project funding.

JMB was also projecting to see a higher revenue stream flowing from mortgage insurance due to the amendment of the Mortgage Insurance Act to increase the coverage to 97 per cent . Subsequent reports, however, indicated a struggle by the JMB to gain participation from mainstream lenders who appear less inclined to lend up to the 97 per cent mark.

In the last report, the Mortgage Indemnity Insurance (MII) plan, which is administered by the Bank on behalf of the Government of Jamaica (GOJ), increased fund size to $1.15 billion from $1.08 billion, the year before.

Over the past five years, JMB’s attempts to create a robust secondary mortgage market (SMM) have been stymied by falling interest rates. JMB subsequently sold its portfolio to a private mortgage lender.

Mollison noted last year, "The interest rate environment … is not conducive to the growth of the SMM product. As a result, the SMM product has been placed on hold in its current format until adequate low-cost facilities can be identified to relaunch the plan."

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