Fri | Oct 19, 2018

EDITORIAL - Positive mortgage move

Published:Tuesday | November 18, 2014 | 12:00 AM
  • EDITORIAL - Positive mortgage move

In the midst of the noisy controversy over the National Housing Trust's (NHT) purchase of the Trelawny property on which Outameni Experience is sited, there was a tangentially related development in Parliament last week that, while not entirely unnoticed, is yet to receive the attention it deserves.

The House amended the Mortgage Insurance Act to increase by as much as seven percentage points to 97 per cent, the indemnity insurance that the Jamaica Mortgage Bank (JMB) can provide to mortgages.

That's a potentially big deal. It could be a shot in the arm for construction and home ownership by increasing effective demand for real estate among the middle class and professionals.

The adjustment, unfortunately, won't impact the majority of contributors to the NHT - perhaps 80 per cent of whom cannot qualify for its benefits, even at its cheapest rates, because they cannot afford to service mortgages on even the most inexpensive homes in the formal sector. That is a matter in need of deeper attention and accelerated, multisectoral research if Jamaica is to begin to deliver affordable housing and reverse a deepening crisis.

But for many people, including NHT contributors, who often mix the Trust's subsidised offerings with more expensive commercial mortgages, the change can be liberating. Indeed, it was often the case that potential homeowners, in steady employment, could meet the monthly servicing cost of mortgages, but had not accumulated the savings for the minimum 10 per cent down payment required under the existing law if lenders are to have the loans insured.

This was not their only upfront cash requirement. There is, too, stamp duty at two per cent of the value of the transaction, a registration fee of 0.25 per cent, plus another 1.5 per cent or so in legal fees.

By allowing the JMB to assume a greater level of mortgage risks, building societies and other mortgage lenders will be able to provide more upfront money to borrowers - and without any near-term danger to the insurer, which has indicated that it is operating below capacity. Borrowers, of course, will start with less equity in their homes, but they could well purchase younger when they are entitled to lower rates with longer time to repay.

More critically, perhaps, is the liquidity that may release by this arrangement. At the end of 2013, for instance, Jamaica's building societies had a portfolio of loans of $95.3 billion. By June this year, this had increased to $99.8 billion. Had these institutions added another seven per cent to those loans, it would have meant nearly $300 million more in cash flowing to the real-estate sector.

An increase in loan values, in this circumstance, would translate to greater effective demand for housing, more construction, more employment and, hopefully, greater economic growth. Having taken this action, perhaps it's time for the Government to address, and lower, the transaction costs, especially on taxes, relating to home ownership.

  • EDITORIAL - Congratulations, Justice Robinson

We welcome Patrick Robinson's election at the United Nations yesterday as a judge of the International Court of Justice in the Hague, where he previously served as a member and president of the International Criminal Tribunal for the Former Yugoslavia.

This was not the easiest of passages for Mr Robinson, given the initial obstacles he faced in the Security Council. But it was obvious in the more representative General Assembly, where he consistently polled beyond the majority threshold for election, that he enjoyed broad global support.

An important contributor to his success is Mr Robinson's jurisprudential skills. His election is also testament to the esteem with which Jamaica is held on the global stage.

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