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.
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 –
- 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;
- 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
The 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.