JMB sells mortgage portfolio to VMBS
Jamaica Mortgage Bank has sold its portfolio of mortgages to Victoria Mutual Building Society (VMBS), which was acquired under a revived but short-lived secondary mortgage programme that the state agency now says has gone back to the drawing board for redesign.
It has also suspended its mortgage-buying programme in the interim.
JMB reintroduced the secondary market three years ago, after four decades of dormancy, but has now pulled back from the programme due, in part, to the prevailing cost of raising capital to fund the mortgage purchases.
JMB General Manager Courtney Wynter said the portfolio was securitised and sold to VMBS “at face value”, but would not disclose the size nor terms of the deal, only that the sale does not affect the mortgages that were bundled for the transaction.
“The mortgagors still retain the terms under their mortgage,” he told the Financial Gleaner this week.
VMBS also sidestepped comment on the value of the transaction, which was executed in October, in words that mimicked Wynter’s comment. “The mortgage portfolio was sold to VMBS at face value and mortgagors will retain the same competitive terms,” said Peter Reid, senior vice-president and chief operating officer, via email Thursday.
However, the Jamaica Public Bodies report, produced annually by the finance ministry, places an estimated value of $195.8 million on JMB’s secondary market portfolio.
Reid said mortgagors will continue to make their loan payments to the institutions where they took out the loans.
JMB even before Wynter’s tenure at the helm – which began less than a year ago on January 6 – has been trying to return to the bond market for capital, but has so far failed to secure the tax waivers for an attractive offer.
A tax-free offer would have allowed the bank to raise cheaper debt to fund its secondary purchases, a programme aimed at freeing up capital that primary mortgage lenders could spin into new loans.
In April 2011, the JMB reintroduced a secondary mortgage market which was once active in the 1970s. Its aim was to increase the number of mortgages sold annually by 4,000 loans.
At the time, it was estimated that housing units produced annually by the National Housing Trust, major developers and private builders was short of 2,600 units per year.
JMB set an ambitious goal to buy up $35 billion in mortgages over seven years to create liquidity for lenders and potentially cheaper mortgages. It started to buy mortgages from primary lenders such as banks, building societies and credit unions, then repackaged them as mortgage-backed securities for sale to institutional investors. It raised money for the project by issuing two sets of five-year bonds valued at a combined $2 billion.
On Monday, Wynter said the programme was suspended but not dead, citing the narrow spreads between the cost of borrowing relative to mortgage rates.
“It is not feasible to raise funds at seven per cent or eight per cent, then lend to the credit unions, as an example, at nine per cent to 10 per cent for them to on-lend to the mortgagor at a competitive rate. As you know, mortgage rates to end users in the private market are now averaging 9.5 per cent to 11 per cent,” he told the Financial Gleaner.
“The secondary mortgage market expansion is not permanently shelved. Given the current interest rate environment, the SMM product is not as feasible as the bank would like, however, the bank is looking at a different model to implement the secondary mortgage product,” the banker insisted.
Wynter said the portfolio, up to the time of its sale to VMBS, had realised its revenue targets and had “zero bad debt”.
The new approach to the secondary market, he said, is “still not fully fleshed out”. It is yet to be decided whether JMB will issue new bonds and if these debt instruments would require a guarantee from the Jamaican Government.
“The JMB continues to work with the GOJ on the offering of tax-free incentives to JMB bondholders, especially given the current IMF programme, where we have seen significant reductions in waivers and incentives,” said Wynter.
But mortgage bank is also “negotiating with various lending entities to secure funding” for its secondary market activities and other programmes, which includes financing of real estate and commercial developments and mortgage insurance. Wynter did not identify the financiers involved.
The redemption dates for the agency’s two outstanding bonds are February and May 2016 and March and July 2017.
Regarding its mortgage insurance function, the JMB head was bullish the bank’s ability to handle any increase in business arising from the recent passage of legislation, which makes mortgages more affordable and accessible to home buyers. The JMB provides insurance to primary lenders.
Changes in the Mortgage Insurance Act, passed by Parliament in early November, allows approved lenders to secure insurance for and therefore lend up to 97 per cent of the appraised value of property, up from 90 per cent.
“The JMB has the capacity to handle the expected increase in insurance volume,” he said.
Through its Mortgage Indemnity Insurance plan, or MII-2, the bank had projected two years ago that once the ceiling for insurable risk was raised, JMB would attract as much as 29.33 per cent of the market for mortgage insurance, up from around 22 per cent.
The MII fund, which is administered on behalf of the Government of Jamaica by the JMB, stood at J$1.1 billion in March 2013.