Mortgage lenders urged to accept 'more sophisticated' collateral
Tameka Gordon, Business Reporter
Mortgage lenders traditionally rely on property titles as proof of ownership of collateral for loans, a practice viewed as timid it seems by conveyance lawyer Alton Morgan, who is pushing for the sector to consider other options such as leasehold contracts.
But the lawyer got immediate pushback on the suggestion from the top private lender in the market, Jamaica National Building Society, whose boss Earl Jarrett says the sector is seeing no demand for acceptance of alternative collateral from borrowers.
Morgan told a housing conference on Monday that by widening the collateral pool, more young people can afford homes.
"The practices of the primary housing lenders haven't changed in the last 40 years ... and I do think there is urgent need for a new paradigm for the whole business of providing financing for the end user to be brought into the 21st century, so that you can, in fact, reduce the cost," he said.
The Registration of Titles Act provides for the use of three forms of proof of ownership, but "banks have done extremely well using the basic form of ownership and have largely ignored the more sophisticated forms," Morgan said in his presentation on financing home ownership to the Caribbean Association of Housing Finance Institutions conference in New Kingston.
"The only mortgage that you want to give is a 'fee simple absolute mortgage' and that is not how the law is structured. The law is structured to say you can have three types of titles - a few simple absolute; settled land, where land is owned in succession by a number of persons; and leasehold," he said.
'Fee simple absolute' is a legal term which refers to complete ownership of land that can be passed on to the owner's heirs.
Land held in fee simple form can be conveyed to whomever its owner pleases, or be mortgaged or otherwise put up as security.
Acceptance of other forms of proof of ownership, the lawyer said, would "free up" idle assets and place home ownership within the grasp of more young people, as well as equity to parents to finance costs, such as education.
Additionally, Morgan advised that adding the names of the children to real estate titles at the onset of mortgages provides the option to extend the life of the mortgage as the children become working adults, instead of going the much more costly route of adding the names after the fact.
"It is a very cheap and reliable method to guarantee continuity of ownership. Because it is there, written on the title, you don't need to pay any estate duty because the vesting of the property occurred from the very beginning," said the conveyance expert.
"Should succession titles be more utilised, the children gain a greater sense of interest as well as obligation in the parental property."
But Jarrett, the general manager of the JNBS group and chairman of CASHFI, says loan products are driven by the demand of clients, and the market is just not asking for those types of financing options.
He said the use of successive titles and leaseholds as collateral is not common locally, with JNBS, for example, having done only two such transactions in the last 10 years.
Jarrett also told the conference that the ownership issue was compounded by unregulated and underutilised lands.
"I think the issue goes back to the amount of untitled lands we have in Jamaica. The last time we checked, we had about 600,000 parcels of land in Jamaica with just under 300,000 genuinely titled," he said.
"So you just don't have enough real estate at play that is regularised, and I'm certain that if families or business persons have a project to do and they had a good lease, the institutions would lend."