The Jamaica Mortgage Bank (JMB) will make five billion dollars in mortgages available to lenders through a Secondary Mortgage Market (SMM) facility within the coming financial year.

Two hundred million of that amount has already been disbursed by the Bank and another J$500 million will be issued to the financial institutions who write primary mortgages within the next 60 days, declared Patrick Thelwell, general manager, JMB.

The SMM facility, which was launched on Wednesday by the JMB at the Terra Nova Hotel in Kingston should see primary lenders offering lower rates on mortgages over time to provide 4000 new housing solutions to middle to low income earners.

A secondary mortgage market provides liquidity to original mortgage lenders, such as banks, credit unions and building societies by purchasing existing mortgages from these institutions, thereby providing new funds to them so that they can provide additional mortgages to other borrowers.

The JMB, as administrators of the SMM facility is now offering these funds through the GSB/Churches Credit Unions at 11.95 per cent interest rates, which is below the current 13.5 per cent mortgage rate. Patrick Thelwell, general manager, JMB is counting on other financial institutions to become a part of the pool of borrowers from the SMM. He is also counting on a vibrant market for mortgage backed securities which will be traded on the Jamaica Stock Exchange.

“We know that with the government trajectory for deficit reduction that funds will be looking for homes since there won’t be any government paper and so we think that a mortgage backed security will fill some of that gap,” said Thelwell.

“What we know is that it is a market to be developed. We have done some preliminary testing. We have been issuing bonds for a long, long time but we have been using them to fund construction financing. We don’t think it is any different because mortgages are a better quality,” he added.

Dr Horace Chang, minister of water and housing in his presentation at the launch, said that the development of a SMM will make purchasing a home more affordable for the average Jamaican.

“The major challenge that we face in the area of housing finance at present, is that the pool is too limited and what is available is too expensive for the average Jamaican,” Chang said. “Reactivating the Secondary Mortgage Market is a key strategy to increase the pool of funds for mortgage financing which in turn will help to drive down the interest rate on these loans.”

This is the second time that a SMM facility is being offered in Jamaica, the first being in the 1970s when the Mortgage Bank then disbursed J$16.8 million representing 1807 mortgages. Chang said at that time the SMM was faced with many challenges which resulted in its abandonment, including high transfer costs, liquidity risks and borrower resistance. However, there is now once again an effort to revive the market following what Chang deemed is demand for 15,000 housing units annually between 2010 and 2030. He said however because of the high cost of mortgages, effective demand was approximately 30 per cent (or 4500) of that amount. Thelwell said with a reduction in the rates on mortgages to about 10 per cent, effective demand for mortgages would increase.

At 11.95 per cent some argued that the rate is still too high for persons in lower income groups. Thelwell said this too will go lower as negotiations with financial institutions continue and as the JMB SMM facility gains traction in the mortgage market.

“Our aim is to build the credit quality of the mortgage market to the point where the price on credit is smaller and smaller so that we can pass that on to the mortgage borrowers,” Thelwell said. “When we talk to GSB and they did 11.95, we are offering them lower interest rate now so we expect that they will bring down that rate. And as we become more credible and build our financial wherewithall we expect that we will be able to access rates from the market at lower rates and pass that on to the customer.”

The government-owned JMB has returned to profitability for the first time in three years at the financial year ended March 31, 2011. The Bank recorded a profit of $130 million, 150 per cent more than the projected $52 million. George Thomas, chairman, said the improved performance should also bolster plans that are currently in train to privatise the Bank.