Mortgage mania - Secondary and reverse markets being considered for Jamaica

Even as he seeks to proceed with caution with regard to policy changes being considered for the real estate industry, Prime Minister Andrew Holness is of the view that Jamaica is ripe for the introduction of a secondary-mortgage market and reverse mortgages.

Speaking at the Annual Real Estate Symposium, hosted by the Realtors Association of Jamaica, Holness announced that the policy and institutional framework for a secondary-mortgage market and reverse mortgages was being crafted by technocrats across various government agencies.

The prime minister argued that the policy changes are needed to unlock the growth potential of the real estate market.

Reduced mortgage rates

In making the case for a secondary-mortgage market, the prime minister pointed out that mortgage rates would be reduced significantly if mortgage lenders had the freedom to offer mortgage-backed securities to investors.

"We are now considering how to get more liquidity into the mortgage market so that mortgage rates can come down even further. We are looking very closely at policy analysis towards developing a secondary-mortgage market. That will ultimately have the effect of bringing down mortgage rates," he told realtors.

A secondary-mortgage market allows for the sale of mortgages on the financial markets. The secondary market is often used to reduce the risk to mortgage companies when homeowners cannot afford to pay their mortgage.

Holness, however, made it clear that the Government would be proceeding with caution given the risk of subprime lending. The 2008 global financial crisis has been blamed on subprime loans, which were offered to people in the United States who did not have the means to repay them. The loans were packaged as mortgage-backed financial products and sold on the secondary market. The eventual default on the loans rocked financial markets and led to the near bankruptcy of large banks and mortgage lenders, which had to be bailed out by the US Government.

"There are several protection models that have been developed for secondary markets, so we are looking at those very carefully," Holness said.

Turning his attention to the potential for the introduction of reverse mortgages to Jamaica, the prime minister pointed to the significant value of real estate in older communities that have experienced deterioration in their housing stock. Reverse mortgages would allow the owners of these older homes to convert the equity in their home to cash.

Holness further announced to the realtors that drafting instructions had been issued for a Townhouse Act, which is expected to address issues of property upkeep and governance of common areas.

He also announced that regulatory changes that would see the merger of the rent board, the real estate board, the strata corporation, and other real estate regulators were also being considered.