New mortgages in Jamaica have been sent into decline by the current slowdown in the domestic and global economies, according to numbers coming out of mortgage institutions, and some lenders are bracing for even worse news next year.

With the imminent agreement between the International Monetary Fund (IMF) and the Government for a US$1.3 billion loan, an even tighter squeeze will be placed on the mortgage market in 2010, at least one major industry player believes.

Hugh Reid, senior vice-president and chief operating officer at Victoria Mutual Building Society (VMBS), told Sunday Business that the negative outlook is supported by the adverse implications the looming IMF deal is expected to have on public-sector employment.

"Given this, we expect to disburse an even smaller number of new mortgages in 2010 than in 2009. It is clear that we will see further economic tightening and a reduction in new mortgages, as well as worsening in arrears," said Reid.

New accounts at VMBS up to October 2009 totalled $3.8 billion, which represents a 50 per cent reduction over the comparative period last year.

Reid has blamed the fall-off primarily on adverse economic conditions, which continue to affect consumers' effective demand, as well as the company's review and tightening up to stem bad loans.

Bank of Jamaica data also reflect a downward spiral in the total value of new mortgages this year to $2.2 billion at September, from $2.8 billion in June, and $3.7 billion at the end of March.

Building societies dominate the mortgage market, which at September was valued at $82 billion, according to the central bank.

Jamaica National Building Society (JNBS) remains market leader with VMBS occupying the number two spot.

For the period April to November 2009, Jamaica National disbursed a total of 1,222 loans, down from 1,441 for the comparable period in 2008.

For the corresponding period in 2007, 1,410 loans were made.

Several lending institutions are reporting that they have tightened qualifying requirements to forestall a worsening of their non-performing loan portfolios in the face of current economic conditions, while they say they have been working with existing customers to contain arrears.

"We continue to observe the highest loan-underwriting standards and our aim is to establish the mortgagor's ability to repay the loan at the time the application is made," said Wanica Purkiss, mortgage executive at JNBS.

The National Housing Trust (NHT) has embarked on a major publicity programme to have its clients discuss their situations with the institution.

"We are now working even more closely with our mortgagors through our mortgage-management prog-ramme to ensure that the arrears situation is contained," said Sophia Lewis, communications coordinator at the NHT.

Foreseen the 2009 economic conditions

Pre-emptive action was also taken by VMBS, its chief operating officer said.

"From as far back as late last year we had foreseen that in 2009 economic conditions would be much more difficult, and we have sent letters to all mortgagors to come in if they are having difficulties," said Reid.

"The earlier they come in the better able we are in deploying options available to assist them."

The expansion in the suite of options, according to VMBS, has included a moratorium on interest and or principal payment, and an offer to recapitalise arrears.

Despite the proactive measures by institutions, delinquency is expected to spike next year.

"Given the expectation for increased job losses, reduced income for mortgagors and especially for self-employed persons, along with the continued recession in the United States of America and United Kingdom, the projection is for some deterioration to occur in our level of arrears," JNBS' Purkiss said this week.

At the end of October, JN's arrears amounted to $288.7 million, resulting in a total of 149 properties being put up for public auction up to November. Its delinquency ratio was reported to be under five per cent.

For VMBS, at October this year, a little more than 600 mortgage loans valued at $265 million were past due over three months. This is a deterioration on the 400 accounts valued at $150 million that were in arrears up to October last year.

"At VMBS, we have seen a deterioration in our loan-quality ratio. It has worsened by at least one-third since the start of this year," Reid said.

VMBS' total mortgage portfolio is now worth approximately $30 billion, covering about 15,000 accounts, of which residential mortgages account for in excess of 90 per cent.

"We anticipate that 2010 will be worse than 2009 so will continue to deploy resources based on the economic conditions and make adjustments as necessary," said Reid.

Statistics

FirstCaribbean International Bank, which, through its building society, controls just about 10 per cent of the residential mortgage-loan market by Bank of Jamaica statistics, reports that its incidence of default is below the industry average, which stood at 5.4 per cent at June 2009.

"I am unable to provide specific details, however, our delinquencies are now higher than normal," FirstCaribbean's managing director, Clovis Metcalfe, said. He expressed the view that an IMF deal would bring stability to the market.

The NHT has an on-book arrears portfolio of $879 million, with 70 properties having been under the hammer for sale by public auction and treaty between January and November this year.

sabrina.gordon@gleanerjm.com