Property Matters – HDC Housing Bonds, part 2

According to the Parliament’s Joint Select Committee 2015 Report into TTMF

“…In 2008 we had established what we called an HDC Unit in anticipation of 3500 mortgages from HDC within three years. Three years later we had to disband that Unit because the HDC did not have the titles that would afford mortgages…”
—testimony of TTMF’s then Managing Director, Ms. Ingrid Lashley, at pg. 126)

The most frequent question arising from last week’s article was in relation to this issue of bad titles on homes built by NHA and HDC, which made it impossible to finance sales via the traditional mortgage lenders. This requires an explanation before getting to the root of my concerns over the parallels with the US financial collapse in 2008 – the Wall Street meltdown which extended to have global consequences. Beyond that, I will draw on Jamaica’s National Housing Trust as an example of an alternative system of housing finance, less dependent on the agents of financialization now looming in the current T&T proposals.

Clients have requested valuations of property they have bought and paid-off from NHA/HDC, but when the deed was requested, those clients were unable to obtain one. The reasons can vary, but the fact is that the State Agency which built and sold those homes is unable to provide a deed. As shown last week, from the HDC’s replies to my queries, that unacceptable situation affects 10,860 of the 15,298 homes distributed – 71% of the total. It is reasonable to label that as unacceptable, since no private developer could survive those odds.

According to Finance Minister, Colm Imbert, in Parliament on Friday 20th September 2019 –

“…unfortunately, over many, many, many years, for all sorts of reasons, it has proven a challenge to get that steady income stream coming in, so that purchasers of houses now would provide the funding for the construction of houses in the future. So, this Government decided that it is necessary to provide the HDC with a steady stream of funds in this way, through the issue of HDC Housing Bonds…”

So, the bonds are to be used to raise funds for the sales of the HDC homes with bad title. This is where the striking parallels with the 2008 USA meltdown occurred to me.

The Wall St. example is rooted in the decision of then USA President Bill Clinton to increase home ownership.

“…In May 1995, President Bill Clinton released the National Homeownership Strategy (US Department of Housing and Urban Development 1995), an 87-page, 100-point plan with the goal that it would “boost homeownership in America to an all-time high by the end of the century.”…”
—from “Homeownership and the American Dream” by Laurie S Goodman and Christopher Mayer in Journal of Economic Perspectives. Volume 32, Number 1. Winter 2018.

Galss-Steagall repeal signing

New Financial arrangements were created to admit previously excluded homebuyers via new income streams from the 1999 abolition of Glass-Steagals Act. This meant that Main St. money was now being risked on Wall St. The funds were raised via bond issues, so ultimately marginal property and marginal borrowers combined to create high-risk holdings of those bonds, dependent on the income streams from the mortgages. The trigger for the crisis was that the apparent buffer of reinsuring those instruments and their derivatives was exacerbated by the originating Institutions being allowed to sell-off those instruments to less-informed buyers.

Two important points need to be mentioned here –

  1. Owner-Occupation – According to Goodman & Meyer, the USA owner-occupation rates actually declined from 63.9% in 1990 to 63.7% in 2015. After all that blood on the floor, one is bound to ask, ‘What was it all for?’ That is financialization for you;
  2. In T&T our rate of owner-occupation is in the 70% range, just imagine that.

That was a summary of a complex meltdown, but consider these points. I am not a financial commentator, yet it seems clear to me that the T&T State’s finances are in poor order, if one goes by the delayed VAT refunds and late payments to contractors/suppliers. Clearly, the State is unable to pay its bills, so to what extent does a sovereign guarantee really offer comfort? How many of our financial commentators will be prepared to look beyond the guarantee to examine the quality of the underlying assets?

Quite frankly, I would not be at all surprised by an overall recommendation to buy these HDC Housing Bonds from our financial commentators.

ADDENDUM: Jamaica’s National Housing Trust

nht-jmThe NHT was established in 1976 and in 1979 adopted a system of mandated contributions from every taxpayer – self-employed, employed and employers – into a pool from which new housing is funded. Each contributor can either apply their combined payments to a purchase or obtain a refund after eight years.

The signal parts of this system are –

  • contributions are required from all taxpayers, up to retirement age, even those who already own their home;
  • the exclusion of middlemen players in these arrangements, so the role of financialization is virtually eliminated, since contributors can obtain refunds directly;
  • contributors can track their balances online and use those details to make informed decisions;
  • employers’ contributions are tax-deductible.

5 thoughts on “Property Matters – HDC Housing Bonds, part 2

  1. I think it useful to copy and paste the following transcript extract from pages 14 and 15 of a 2010 documentary called “Inside Job” by Charles Ferguson

    Source: https://www.sonyclassics.com/awards-information/insidejob_screenplay.pdf

    Narrator: In 1985, when federal regulators began investigating him, Keating hired an economist named Alan Greenspan. In this letter to regulators, Greenspan praised
    Keating’s sound business plans and expertise, and said he saw no risk in allowing Keating to invest his customers’ money. Keating reportedly paid Greenspan 40,000 dollars. Charles Keating went to prison shortly afterwards. As for Alan Greenspan,
    President Reagan appointed him chairman of America’s central bank, the Federal
    Reserve. Greenspan was reappointed by presidents Clinton and George W. Bush. During the Clinton administration, deregulation continued under Greenspan and Treasury secretaries Robert Rubin- the former CEO of the investment bank, Goldman Sachs- and Larry Summers, a Harvard economics’ professor.

    Nouriel Roubini: The financial sector, Wall Street being powerful, having lobbies, having lots of money, step by step, captured the political system; you know, both on the Democratic and the Republican side.

    Narrator: By the late 1990s, the financial sector had consolidated into a few gigantic firms, each of them so large that their failure could threaten the whole system and the
    Clinton administration helped them grow even larger. In 1998, Citicorp and Travellers merged to form Citigroup, the largest financial services company in the world. The merger violated the Glass-Steagall Act, a law passed after the Great Depression, which prevented banks with consumer deposits from engaging in risky investment banking activities.

    Robert Gnaizda former director of Greenlining Institute: It was illegal to acquire Travellers. Greenspan said nothing. The Federal Reserve gave them an exemption for a year and then they got the law passed.

    Narrator: In 1999, at the urging of Summers and Rubin, Congress passed the Gramm-Leach-Bliley Act, known to some as the Citigroup Relief Act. It overturned Glass-Steagall and cleared the way for future mergers.

    Robert Rubin would later make $126 million as vice-chairman of Citigroup (He declined to be interviewed.)

    Willem Buiter Chief Economist, Citigroup: Why do you have big banks? Well, because banks like monopoly power; because banks like lobbying power; because, banks know that when they’re too big, they will be bailed.

    George Soros: Markets are inherently unstable, or at least potentially unstable. An appropriate metaphor is the oil tankers. They are very big and therefore, you have to put in compartments to prevent the sloshing around of oil from capsizing the boat. The design of the boat has to take that into account. And after the Depression, regulations actually introduced these very watertight compartments and deregulation has led to the end of compartmentalization.

    Narrator: The next crisis came at the end of the ’90s. The investment banks fuelled a massive bubble in Internet stocks, which was followed by a crash in 2001 that caused 5 trillion dollars in investment losses. The Securities and Exchange Commission, the federal agency, which had been created during the Depression to regulate investment banking, had done nothing.

    Eliot Spitzer: In the absence of meaningful federal action — and there has been none — and given the clear failure of self-regulation; it has become necessary for others to step in and adopt the protections needed.

  2. Mr Raymond thank you for your information. The big question is if the HDC will pass the requirement of the Security and Exchange Commisson. The HDC has not produced audited financial statement for several years. It should be illegal to invest in a company which cannot account for billions of dollars spent over the years.

  3. Observer-the GORTT will pass over the SEC like a Brighton bucket(the south version of a full bus)

    FCB IPO(GORTT owned) is still tainted by the un resolved purchase of an over allotment of shares by an employee…executed by a firm who included the Chair of the SEC and the FINANCIER of the purchase on their Board.

    In what is a world class,text book case of Insider Trading-the employee being CHIEF Risk Officer was at a nexus point of the Bank(the client),The Lead Broker and the Broker Dealer-being related to the financier.

    Some how raises 14M TTD to buy shares-financed by his ‘family and the bank’

    Then sells them to a network of family owned companies, and individuals at a price 20% above market on the heaviest volume day

    Im really not sure how many more red flags our authorities needed to become worried.

    As of today while there has been a report from the SEC t…..every one keeps their winnings.

    So at best SEC will write a report.

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