Are mortgage providers prioritising market share over risk? They say no:
THE AGENCY that insures mortgages as one of its functions is growing concerned that loan providers may be climbing too far out on a limb to secure market share, given some of the current financing deals that offer credit at or beyond the value of property transactions.
It’s referred to as the loan-to-value ratio, or LTV, which previously ranged up to 97 per cent.
General Manager of the Jamaica Mortgage Bank, Courtney Wynter, says the providers of mortgages that go beyond 97 per cent LTV could find themselves with bad loans on their books in a few years.
However, large lenders Victoria Mutual Building Society, VMBS, and JN Bank have pushed back to say that they are approaching risk management scrupulously to avoid that outcome.
VMBS is now offering a 100 per cent mortgage facility, while JN Bank has topped that with a 110 per cent financing offer.
“Obviously, these financial Institutions, being prudent lenders, have done their assessments and weighed the incremental risk against their capital adequacy positions and risk appetite, and have taken the decision to offer 100 per cent to 110 per cent loan-to-value ratio. I also assume that they will be very selective in their offerings,” said Wynter.
“My only concern would be the ease at which someone without any equity or stake in a property, especially in the early life cycle of that loan, could return the keys to the bank,” he said.
Asked for comment, JN Bank, the largest private issuer of mortgage loans, said in response that all risks can be managed and mitigated through the right controls.
“Using sound credit underwriting standards and credit risk-management practices commensurate with our risk appetite, JN Bank ensures that the relevant processes, systems and tools for measuring, monitoring and managing risks are implemented for every loan type offered to our customers,” the bank said in written responses to the Financial Gleaner.
“The use of data analytics to inform product design and market-targeting strategies are key components of the risk-management process,” it added.
VMBS’s special offer is geared at the “traditionally forgotten” owners of micro
businesses – including taxi owners, electricians, plumbers and hairdressers – who, the building society says, have been underserved by lenders.
That facility offers a 100 per cent loan priced at 8.5 per cent and is limited to a $1.4-billion pool of funds.
“At VMBS, we understand the risks associated with offering 100 per cent mortgage financing and manage this risk closely,” said Peter Reid, CEO of building society operations for VM Group.
“We manage the risks by placing a cap on the fund. We have set aside funds to service this product and are being very deliberate about investing in this working segment of our population. We also ensure that we provide our members with financial education so that they can make the best decisions for themselves and their families, because we care,” he told the
Financial Gleaner.
Meantime, Wynter says the mortgage bank, which is state-owned, is unlikely to redesign its insurance facility in anticipation of the new risk.
JMB’s mortgage indemnity insurance, or MII, product is designed to shift some of the risk away from the lenders, “but it also ensures the borrower accepts as low as three per cent risk in the property,” he added.
The MII facility is meant to protect mortgage lenders against loss in the event of default by mortgagors. MII premiums are a one-time payment calculated at seven per cent of the value of a housing loan for the life of the policy. Each housing unit is covered individually.
The mortgage bank will underwrite up to 25 per cent of a mortgage. Earlier this year, JMB slashed MII rates by 29 per cent to increase take up of the insurance product.
In an update on Wednesday, Wynter said the MII fund is now at $1.5 billion, covering some $600 million in mortgages.
The local mortgage market is estimated at about $400 billion, with the NHT having accounting for $195 billion of the market, and banks and building societies controlling $193 billion.
‘At VMBS we understand the risks associated with offering 100 per cent mortgage financing and manage this risk closely.’