NHT promises to pay difference in interest rates for contributors sent to banks

The National Housing Trust (NHT) is expected to pay millions of dollars in interest to commercial banks and other financial institutions when it offloads mortgages for contributors earning $30,001 or more weekly to these entities.

The change, which will affect approximately 30 per cent of contributors, will occur under its new External Financing Mortgage Programme (EMFP).

Contributors earning $30,000.99 per week or less will continue to apply directly to the NHT.

In an emailed response on Tuesday to a Gleaner query, the NHT confirmed that it is set to pay the difference in interest rate to the National Commercial Bank, COK Sodality Co-Operative Credit Union, and Scotiabank.

The state agency said it is projected to have at least 10 more partners signed on to the programme beginning this month, including additional credit unions, commercial banks, and building societies.

The EFMP is an arrangement where the NHT partners with mortgage-lending institutions to fund loan disbursements to contributors. The disbursement includes NHT mortgage benefits of up to $7.5 million, or $8.5 million, where applicable, per beneficiary, which will be fully financed by the financial partner.

“The NHT will then pay directly to the financial partner the difference between the interest rate charged under the programme (the programme rate) and the borrower’s applicable NHT interest rate,” the NHT said.

The NHT did not respond to a subsequent Gleaner request for the projected cost to the agency for this arrangement.

It said that the rate to the financial partner under the programme is decided jointly and is based on market factors, standardised across all financial partners and is subject to periodic review.

The NHT said that the programme rate is established at one percentage point above the Bank of Jamaica’s policy rate or the partner’s interest rate, whichever is lower.

The housing trust said that this will allow for greater options, more competitive rates and an overall improved mortgage package for customers.

Mortgagors under the EFMP will also be eligible for a cash refund of annual NHT contributions when due.

The loans available under the new arrangement include Open Market purchases for lots and units, home improvement, Ten Plus and Fifteen Plus loans as well as construction type loans to include Build on Own Land loans.

“The NHT anticipates that the monies which would usually be used for mortgage financing will be redirected into the housing construction programme, to assist the Trust in meeting its strategic target to significantly increase housing supply at the affordable housing segment of the market,” NHT said.

NOT BETTER off OR WORSE

Economist and University of the West Indies Lecturer Dr Peter-John Gordon told The Gleaner that under the arrangement, contributors are no better off or worse off than they would be if they dealt directly with the NHT.

He said that since the partner rate of interest is usually higher than the NHT rate, the difference will be paid to the partner institution from the NHT.

“The partner institutions are, therefore, no better off or worst off in terms of the interest earned had they negotiated the loans to the customers directly without the involvement of the NHT. NHT is paying out money to the partner institutions which they would not be doing if they were lending directly to customers,” he said.

“So the NHT will be paying over money to the financial partners, which you could think of as the price for freeing up the NHT funds so that they can be used for building affordable houses,” he added.

The opposition People’s National Party (PNP) said it is “troubled” by the new arrangement.

“We are uneasy about this development because we know that the primary focus of banks and other private sector financial institutions is primarily profit-driven,” said Opposition Spokesperson on Housing and Sustainable Living Dr Floyd Morris.

He argued that the goal of the NHT is to provide affordable housing for its contributors.

“Therefore, we are highly apprehensive that this new arrangement is going to be disadvantageous to the contributors of the NHT,” the senator added while expressing concern about the employment status of NHT employees.

He said under the EFMP the suggestion is that a significant portion of the core operations of the NHT will be conducted by operatives in the private financial market.

“It means that there will be fewer workers needed at the NHT. Will we be seeing a mass reduction of staff at the NHT?” he questioned.

The trust said in addition to meeting requirements for accessing an NHT loan, “contributors may be required to satisfy additional requirements as per the underwriting procedures of the respective mortgage institution”.

Further, NHT said joint financing mortgage arrangements are not new to its contributors as they have been exposed to the EFMP’s predecessor, the Joint Financing Mortgage Programme, for the past 20 years.

“Notwithstanding, the NHT wishes to emphasise that under the EFMP, customers are entitled to their full NHT loan amounts. Against that background, where customers have been unable to finalise a loan with a financial partner, the NHT will honour any such loan to qualified contributors via our network of branch offices,” it said.

Asked about contributors who may have poor credit history and may be denied by partners, NHT said that in keeping with prudent financial management, it conducts credit checks on loans it writes to qualified contributors.

Additionally, it said follow-up credit assessments are carried out throughout the life of the loan to ensure that the NHT is not unnecessarily exposed to credit risk.

“Determining credit worthiness is, therefore, not novel but rather an established principle of loan underwriting. Where NHT contributors, however, are not able to finalise loans with EFMP partners, the NHT will review the circumstances and where necessary, process same,” the state agency said.