Samuels

After two years of running operating deficits, the National Housing Trust (NHT) reported a $1.8 billion profit for its financial year to March 31 and, according to the agency's chief executive officer, Earl Samuels, it is highly unlikely that a raft of new initiatives to improve access to NHT mortages will weaken the trust's balance sheet.

"We will manage it so that it will not have any adverse impact on our loan programmes," Samuels said of the initiatives announced a fortnight ago.

The NHT is a government agency, established more than three decades ago, to promote shelter in Jamaica by providing low-cost mortgages to beneficiaries.

The scheme is funded by a three per cent payroll tax on employers, plus a two per cent contribution by employees, who can get back annual contributions after seven years, with a small interest.

Lower interest costs

Individuals can borrow a maximum of $3.5 million, or up to three persons can combined for double that amount. But even with interest costs which, at between two and eight per cent, are substantially lower than in the private market, a survey by the trust last year indicated that 80 per cent of its contributors, based on their incomes, would not qualify to borrow.

It was partially against this backdrop that the NHT crafted the recent measures, including one that allows a contributor, who is unable to muster the down payment on a home, to enter a three-year lease arrange-ment for a trust property. Lease payments during that period go towards the down payment.

Different initiative

Another initiative, which will come on stream later this year, will allow a borrower to share equity in a house with the NHT, with the right to buy out the trust's portion at anytime.

The NHT is also changing the way people can combine to borrow the maximum amount by, in those circumstances, removing the $3.5 limit on an individual. In the future when people combine and one person's carrying capacity cannot reach the $3.5 million, the group will still be able to borrow the maximum $7 million of the other partner(s) if they can afford to service a higher mortgage.

The NHT is also extending the life of its mortgages, by five, to 40 years, and increasing the age at which borrowers must complete their payout from 65 to 70.

"The present cap we are imposing is that not more than 10 per cent of our schemes units will be allocated under these programmes," Samuels told Wednesday Business.

Currently, the NHT, which has more than $85 billion in outstanding loans, provides around 7,000 mortgages ($13.1 billion in 2008/2009), but Samuels said it is expected that the new strategies will add up to 3,000 new beneficiaries annually.

Operating deficit

"These new initiatives will push the number of new loans more in the region of 9,000-10,000 new loans per year," he said. "I will be happy with 9,000 but we can go 10,000."

The agency is keen to prevent what was claimed by the then Opposition to be a threat of insolvency three years ago. At that time the NHT returned an operating deficit of over a half-billion dollars. This was related, in part, to a one-off $5 billion "contribution" it was obliged by the former People's National Party (PNP)-led government to make in the 2005/2006 education budget. The NHT also spent several billion dollars on an inner-city housing project, aimed at delivering quality homes to many people who had not subscribed to the trust and whose purchases would have to be highly subsidised.

The former government also undertook a succession of rate cuts on NHT loans.

"Those subsidies, plus the significant reduction in the interest rates, had caused the NHT to be operating at a loss," Samuels told Wednesday Business.

"We had discontinued the Inner City Housing Programme so that deep subsidy is no longer flowing out and we are coming to the end of the Sugar Workers Housing Programme, so there is a reduction in the subsidy," he said.

Additionally, in its first budget in April 2008, the Bruce Golding administration jacked up the NHT's mortgage for its top-end borrowers by some 33.3 per cent to the current eight per cent.

For the 2007/2008 financial year, the deficit declined to $321 million, followed by this year's $1.8 billion surplus, helped by a number of one-off gains, including on foreign-exchange holdings.

Insolvency

"NHT was never insolvent but if you continue to make operating losses, then down the road it could lead to insolvency," Samuels said. "If we had continued to lend at a rate lower than it is costing us to finance these loans, then it would eventually lead to that."

In its last financial year, the NHT, with assets of $116.3 billion, had income of $8.4 billion, indicating that it was able to push over 20 per cent of its revenue directly to the bottom line.

Interest income, at $4.3 billion, represented approximately 51 per cent of its total income, followed by investment income which accounted for $1.9 billion or 22 per cent.

dionne.rose@gleanerjm.com

Residents walk by the Inner-City Housing Project at Little King Street in Denham Town, west Kingston. - file