Mortgage providers face conundrum over stubborn NPLs
Local mortgage providers who have pulled assets in the form of foreclosed properties on to their books will have to offload the properties before strict deadlines set under the pending Banking Services Act elapse.
The asset bulge arising from foreclosures is a consequence of the recent financial crisis during which many local lenders accumulated a high non-performing loan portfolio - NPLs - as borrowers neglected to pay their mortgages.
The problem for deposit-takers such as building societies is that they can only own real estate assets that are used in the operation of the business.
NPLs, in general, remain an intransigent problem at 6.4 per cent of gross loans as at June for the industry.
Jamaica National Building Society (JNBS), which was the only mortgage company to comment for this story, said its NPLs were rising, but the market leader also expressed confidence that the new legal strictures would not present a problem in the future as it is currently making a strong push to sell foreclosed properties.
Earl Samuels, JNBS assistant general manager in charge of group finance and mortgage operations, said Thursday that the society's NPLs at November 30 were valued at $2.74 billion, up modestly from $2.7 billion at November 2013.
Industry-wide, based on data compiled by the central bank to June, building society NPLs ticked down to $6.5 billion but are up by more than half a billion dollars relative to 2012.
JNBS is the largest mortgage lender of three building societies, with assets of $122 billion inclusive of a loan book of $51 billion at midyear, according to Bank of Jamaica data. VMBS is valued at $80 billion by assets and manages $29 billion of loans, while Scotia Jamaica Building Society is valued at $20.67 billion by assets, virtually all of which resides in its loan book, which totals $19.6 billion.
Questioned as to the number of properties foreclosed by JNBS, Samuels avoided a direct answer but noted: "The number of properties acquired by JNBS through foreclosure has increased over the past three years."
Under the Banking Services Act, which is expected to come into force when regulations have been gazetted mid-2015, banking institutions that have foreclosed on real estate assets to recover outstanding debt must dispose of the properties within three years, unless granted an extension by the minister of finance.
Under the law, deposit-takers can only acquire fixed assets for the purpose of operating their businesses.
Real estate experts say that foreclosed properties have proven difficult to sell, and largely blame it on the unrealistic expectations of the banking sector.
Deborah Cumming of Century 21 Heave-Ho Properties referred to the market as "a huge mess".
"Even though these are forced sales, they (the banks) are not pricing the properties at a point where people are willing to buy. There are discrepancies in the valuations," said Cumming.
"Markets are made of buyers and sellers and foreclosed properties are not being priced to attract demand, so there are no buyers," she said.
Edwin Wint, the new president of Realtors Association of Jamaica, said that sometimes, even though the property is foreclosed, the banks still want to sell at market price.
Investors more likely to buy
Additionally, Wilfred Baghaloo, an expert in the administration of
distressed assets, said properties pitched at investors are more likely to find buyers.
"For foreclosed properties, sales are better in the higher end where people are buying to invest. Otherwise, I don't think they are going very well. Efforts to restructure loans are not really in line with people's actual circumstances. They are not going very well at all," said Baghaloo, a director of PricewaterhouseCoopers Jamaica.
Still, Samuels said JNBS has disposed of several foreclosed properties, and has buffered it efforts to offload others by appointing property managers to maintain and promote properties for open-market sales, affixing 'for sale' signs to premises and encouraging realtors to also include these properties in their listing.
The society also maintains a foreclosed property listing on its website.
Samuels said JNBS representatives have been visiting the properties regularly to "sensitise members of the community to our sale efforts" and attending to the property taxes, utility bills, and covenant breaches to clear all roadblocks that could delay sale of the properties.
JNBS has also moved to "acquire up-to-date valuations and surveyor's identification reports to guide our disposal efforts", said Samuels.
In the meantime, the company has put measures in place to prevent other loans from falling into arrears, among them debt-refinancing options, ongoing telephone contact with borrowers, and field visits to collect mortgage payments.
Samuels also said JNBS' warnings of public auction proceedings, communicated via notices such as issuance of demand letters, statutory notices and valuation requests, and the listing properties for sale at public auction and private treaty, have also proved effective.
"Borrowers are normally responsive to our debt-restructuring solutions, and they are also responsive if they are told that their properties will be auctioned to the public," Samuels said.