Lucrative mortgage indemnity fund has no claims

Courtney Wynter, general manager of Jamaica Mortgage Bank, says more mortgage providers are contributing to the state-run bank’s mortgage indemnity insurance fund, referred to as MII, but so far none has drawn down on the coverage it offers against bad risk.

Major mortgage providers, currently comprising seven institutions, are covered by the fund, which is $2 billion in value. It covers about a thousand insurance policies, which Wynter says likely represent the riskier accounts, only, held by mortgage lenders.

“The MII can help to reduce lending risk of financial institutions,” said Winter.

However, the fund has no history of any claims.

JMB reports that last year, premiums paid to MII were 31.1 per cent higher compared to 2021, but did not specify the value of the premiums collected.

The spike comes amid a rise in consumer loans, which the Bank of Jamaica reported mainly reflected growth of 17 per cent or $44.1 billion in mortgage lending, amid growth in new housing developments across urban Jamaica.

The purpose of MII is to protect mortgage lenders against loss in the event of default by mortgagors.

Six years ago, in 2017, the MII was valued at $1.4 billion and then covered 900 policies and six mortgage providers.

Approximately 90 per cent of the total fund is invested.

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. And the mortgage bank will underwrite up to 25 per cent of a mortgage.

The current subscribers to MII are CIBC FirstCaribbean International Bank Jamaica, National Commercial Bank Jamaica, Sagicor Bank Jamaica, Sagicor Life Jamaica, VM Building Society, First Global Bank and First Heritage Co-operative Credit Union.

The mortgage market in Jamaica is valued at around $500 billion with default rates on loans ranging between three and five per cent.

Wynter, addressing the absence of claims on the fund, said property values in Jamaica increases at a rate that reduces risk.

“Once there is a default with the financial institution and the upper portion insured by us is not recovered by the FI, then a claim [would be] made on the MII,” he said, in theory.

However, he added, “100 per cent of the time the portion covered by MII is already paid down; or because of the appreciation of real estate in Jamaica, oftentimes the FI is able to recover fully,” said the mortgage banker.

The JMB, which has been in operation for 52 years, insures both residential and commercial property but to date the MII policies relates only to residential mortgage loans.

avia.collinder@gleanerjm.com