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JNBS going after NHT's mortgage portfolio

Published:Friday | May 14, 2010 | 12:00 AM
Wanica Purkiss, executive of the Mortgage Department at Jamaica National Building Society. - File

Dionne Rose, Business Reporter

Jamaica's largest private mortgage lender is actively lobbying the state-owned National Housing Trust (NHT) to outsource the management of its mortgage portfolio, which generates about J$10 billion of new business each year.

Jamaica National Building Society (JNBS) confirmed that it was engaged in talks to bag the NHT's more than 84,000 mortgage accounts.

"The talks with the NHT in this respect are ongoing," said Wanica Purkiss, JNBS mortgage and operations executive.

JNBS appears to be the only party to the discussions with NHT.

Richard Powell, president and chief executive officer of Victoria Mutual Building Society, said his company was not involved, as did Gladstone Whitelocke, general manager of Scotia Jamaica Building Society (SJBS).

NHT is yet to respond to requests for comment on the discussions, but if it agrees to the divestment, it will likely require JNBS and others to bid for the business, in accordance with government procurement rules.

NHT's mortgage portfolio is valued at J$96.4 billion among total assets of J$132 billion, its unaudited figures show. It had 84,767 active accounts on its books up to April.

The state agency, which is both a mortgage lender and developer of low-cost housing, generates new business annually valued at some J$10 billion-J$12 billion from 4,500-6,500 of new mortgage issues.

It books around J$4.8 billion of revenue per fiscal year from interest payments on the J$96-billion portfolio.

JNBS is selling the outsourcing plan as a cost saver for NHT, whose operating expenses are around J$4 billion.

"NHT would stand to derive certain benefits from outsourcing its mortgage portfolio while still being able to negotiate rates and amounts being borrowed," said Purkiss.

The building societies, she said, would assume responsibility for loan processing, disbursement and servicing.

"It eliminates the risk of arrears, as these risks will be transferred to building societies which will be required to make agreed interest payments to the NHT irrespective of how the beneficiaries service their accounts."

The trust has reported mounting arrears from mortgagors, with some of the delinquency due to jobs lost in the current recession.

Mortgage losses which were reported at just J$18 million at FY 2008-09, rose to an estimated J$288 million last year, and are projected to climb higher to J$314 million this fiscal period, which closes March 2011.

holding strong on market

NHT has long muscled out private players from the low end of the real-estate market because of its cheaper lending rates.

The average loan last year cost around six per cent, reduced to five per cent on May 1, while the building societies lend at 12-13 per cent.

The private players sought to level the field through strategic partner-ships with the trust that allow borrowers to combine NHT loans with private-market funds to reduce the cost of mortgages.

The one per cent cut in rates across NHT loan bands and the increase in the loan ceiling to J$4.5 million per applicant are seen as potentially erasing some of the inroads made by private lenders, especially for real estate priced under J$10 million.

"The NHT remains active in the retail market in spite of its own policy to utilise the mortgage-processing facilities of building societies to approve and disburse mortgages to its beneficiaries," Purkiss said.

She said JNBS was unable to compete with current NHT rates, which now range from 1-8 per cent across income bands.

"Given that the JNBS source of funding loans is from members' savings, as against compulsory contributions by the NHT, and that building societies have very stringent Bank of Jamaica cash-reserve requirements, JNBS cannot lower interest rates to compete with the NHT on the open market," she said.

So, instead of competing for business, the building society is now shifting strategy to help manage the NHT's burgeoning portfolio, from which it would earn a fee.

Still Purkiss said the new NHT policy changes could spike selling prices and property values, even as she maintained that the cheaper rates were unlikely to revive the soft real-estate market at this time.

The industry would remain sluggish unless "there is growth in the economy and new jobs are created (so that) borrowers' disposable income can support their ability to service a mortgage loan," she said, and "there is an availability of residential properties to fill the demand at certain price ranges."

Whitelocke at SJBS had a different view.

"I am anticipating an uptick in activity," he said. "I think it should have a positive impact on the market."