Propping up construction - Mortgage bank offers subsidised loans to stimulate housing boom
Published: Sunday | March 22, 2009
Several upscale houses like this one are either up for sale by the owners or are being auctioned by mortgage institutions.
Daraine Luton, Staff Reporter
IN AN attempt to free the housing industry from the clutch of a stifling global economic crunch, the Jamaica Mortgage Bank (JMB) has moved to subsidise housing developments that are priced at below $15 million.
Patrick Thelwell, general manager of the JMB, tells The Sunday Gleaner that several developers have expressed an interest in benefiting from the loan funds, which are to be provided at a concessionary rate of 20 per cent.
Thelwell says the rate represents a "marginal subsidy" as it is below the bank's weighted average cost of funds, which is 21.1 per cent.
"We are able to do that because the Government has given us $1 billion worth of tax-free bonds so our cost of funds has dropped by 30 per cent and we have agreed to pass that on to the developers," Thelwell says.
Loans for development
At present, the cost of loans for development purposes is in the region of 29 per cent and could climb higher, as the economic vice tightens its grips.
Thelwell says the bank has not yet reached the stage where it is accepting proposals for the 20 per cent money but he notes that a number of developers have expressed interest in acquiring the funds.
The bank has said that the projects being presented must have an excellent probability of being sold before the completion of construction.
Despite making a loss on the intended loans Thelwell says this will not hurt the bank's financial position.
"We endeavour to work in a profitable environment, but, given the situation, we have sufficient retained earnings and reserve to take us through a one-year loss," the general manager says.
Concessionary loan
Thelwell tells The Sunday Gleaner that only developers who are constructing homes that will be sold for below $15 million prices will benefit from the concessionary loan.
Realtors have reported that it has become increasingly difficult to sell houses.
However, the absence of a central data-processing system in the Ministry of Housing has made it difficult to capture the full extent of the economic crunch on the housing sector.
But Thelwell says, "Our general feel in the market is that there is a general slowing down of the rate of which people are buying and producing houses."
"There is some movement at the sub-$15 million level. We still find that those developments are being purchased. The difficulty is in the higher end, as we have seen the largest contraction in the over $25 million unit. Those are getting more and more difficult to dispose of. That is why we are encouraging the construction of the sub-$15 million units," Thelwell says.
Karl Samuda, the minister of Commerce, Investment and Industry, tells The Sunday Gleaner that it is very important to keep the construction sector afloat.
"Investment in infrastructure is going to be crucial. The construction sector generates a lot of employment and we certainly need to encourage it," Samuda says.
Employment
Data published by the Planning Institute of Jamaica in its 2007 Economic and Social Survey indicates that approximately 118,000 Jamaicans are employed in the construction and installation sector.
According to Thelwell, it is important for the majority of these people to remain at work if the economy is to survive against the odds.
"We see our role as part of the stimulus package. One of the things that we want to do is to continue the construction sector. These developments have workers and machinery and we want to keep those employed. Most developments take about 24 - 36 months and the expectation is that by the time the houses are completed we should be out of this credit crunch," Thelwell says.
daraine.luton@gleanerjm.com
Preventing foreclosure
Gareth Manning, Staff Reporter
THOUSANDS OF homeowners are at risk of losing their houses as banks and other mortgage institutions move to foreclose.
But the banks, building societies and other lending institutions have made it clear that they would rather collect than seize the properties which they would have to place on the auction block at a time when the takers are few.
Cathy Brown, manager of Jamaica National Building Society's Mortgage Response Strategic Unit, offers tips and options for mortgagers:
Don't panic! Budget. Buy in bulk. Use up your skills to supplement your disposable income and get the entire family involved in planning the budget.
The mortgage is often the payment many people tend to pay last, given the urgency of other bills such as utilities. To avoid difficulties with monthly payments, however, Brown advises mortgagers to pay what they have. By doing that, you will avoid paying two mortgage payments in the upcoming month.
Let your mortgage provider know about your situation early on so they can know what option is best for you.
JN options
The upkeep is a component of your mortgage payment. The monthly mortgage payment is made up of the principal, interest, the upkeep savings and the escrow (your peril or mortgage life insurance). The upkeep is for improving or repairing the property.
Jamaica National will allow you to use the upkeep to offset part of your principal to make your monthly payments less or allow you to use it to offset your arrears if you find that you are running behind in your monthly payments.
Your interest payments could be postponed for a period of up to six months. During that period, the principal balance will remain the same. The interest, however, will have to be paid by the mortgager at the end of the period but arrangements can be made up front for the interest of the period to be capitalised and added to the principal balance after the period has expired.
You can extend the period over which you originally planned to pay your mortgage. The period can be extended to allow you to make payments up 75 years of age. This will reduce the monthly payments that you currently make.
JN has this option available, particularly for mortgagers with debts other than their mortgage, which includes credit-card debts and other loan payments. Once you have a mortgage with JN, the debt can be consolidated. This is, however, done on a case-by-case basis.
If there is an increase in your interest rate, JN can freeze the interest for a period of time to allow the mortgager to make the same monthly payments.
