Mortgage buyout

National Housing Trust (NHT) secured mortgage buyout deals with three financial companies that it partners with under the Joint Financing Mortgage Programme, JFMP, but is keeping the details of the transactions under wraps.

The size of the buyout is unknown, but indications are that the value of the mortgages involved may have topped $35 billion, based on analysis of industry data published by the central bank, and covered nearly all the JFMP debt owed to NHT by the three participating lenders – JN Bank, Victoria Mutual Building Society and Scotia Jamaica Building Society. JN was a building society before its transition to a commercial bank four years ago.

None of the parties engaged in the transaction spoke to its details, including the NHT, but the buyouts were quietly agreed to last year after the housing agency approached its JFMP partners with the offer to sell them the debt at a discounted price.

Jamaica National Group, parent of JN Bank, which initially disclosed the buyout to members at their annual general meeting earlier this year, has since raised $4.6 billion on the capital market to finance its portion of the transaction. JN has not said whether the deal is now finalised, but its annual report noted that it expects to conclude the JFMP acquisition by June 21.

NHT told the Financial Gleaner it approached the participating JFMP lenders because it needed cash to pour into new and ongoing developments but did not disclose how much it made from the transactions.

“The NHT has made considerable investments in housing based on the increased housing starts in recent years. Despite this increased construction activity under an accelerated housing programme, there is more work to be done, especially in the affordable housing market,” the agency said.

The JFMP portfolio was valued at $42.5 billion as at March 2019, in the most recent annual report published by NHT and the programme has nine private sector participants, comprising seven banks and two building societies.

Under the JFMP, the housing agency has an agreement to invest funds with participating institutions for the sole purpose of them on-lending the funds to qualified contributors of the NHT. All JFMP loans are written by the financial institutions, the mortgages are paid to them, and they in turn remit NHT’s portion to the housing agency as the loans are serviced.

VMBS disclosed in its audited 2020 accounts that it cleared $15.2 billion of debt to NHT under the deal, and booked a gain of just under $4.2 billion from the transaction, but has not said precisely how much it actually paid over to the housing agency.

VM Group Chief Investment Officer Devon Barrett described the JFMP deal as one of the largest transactions the Government has ever done with the private banking sector. The parties “completed this deal with tremendous efficiency and at a negotiated price that was satisfactory to both,” he said.

The price paid for the loans was calculated at the net present value of future mortgages payments that extend up to 30 years, with a discount built in.

“This deal is a win for the NHT and VMBS,” Barrett said.

Scotia Jamaica Building Society declined to comment on its agreement with NHT, saying “some of the information requested would be considered proprietary”, but affirmed that it would continue issuing new loans under the JFMP to Scotiabank customers.

None of the entities directly disclose the JFMP debt but book it as a liability ‘owed to specialised financial institution’ or SFI.

Bank of Jamaica indicates that the SFI debt held by VMBS dropped from more than $15 billion to $813 million last September, before rising back to $1.57 billion in December, comporting with the building society’s audited results; Scotia Jamaica’s SFI dropped from $5.3 billion to $1.77 billion and then to zero in the same period; while JN Bank’s SFI fell from $20 billion to $457 million before rising back to $960 million.

NHT confirmed that the transaction with JN Bank covered the entire portion of JFMP portfolio managed by them as at July 2020. JN Group CEO Earl Jarrett said the acquisition would “not affect current or existing mortgages”.

At the end of fiscal 2020, NHT had 18,929 housing units under construction in various schemes across Jamaica, the value of which was around $18.1 billion; while the value of housing units completed but not yet sold increased almost threefold to $1.3 billion.

“The initiative will create even more capital for the NHT to make even greater investments in housing that will redound to the benefit of NHT contributors,” the trust said regarding the JFMP buyouts.

neville.graham@gleanerjm.com