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PM, you wrong fe increase NHT rate
published: Tuesday | July 1, 2008
Devon Dick
By today, most National Housing Trust (NHT) contributors would have made the new mortgage payments based on the increase from six per cent to eight per cent. Hopefully, some investigative journalism will unearth the impact of this two per cent increase on families and their ability to survive and retain their houses.
So far, only a Gleaner reporter created two scenarios about the likely cost of mortgage payments. And only The Gleaner editorial of May 8 perceived a possible crisis. In that editorial about the terms of reference for the FINSAC enquiry, The Gleaner said, "the Government should evaluate whether the proposed increase in National Housing Trust mortgages is likely to create a 'sub prime' crisis in Jamaica". But even if the Government does not want to do it, at least the media and civil society should undertake this study.
How come the Hon Bruce Golding, prime minister, could reject a proposal from the NHT to have variable interest rates, based on changes in the underlying interest rate index, yet he can increase the loan rate from six per cent to eight per cent based on the alleged poor financial status of the trust? In addition, he said in his Budget speech that "it is wrong to use NHT funds to provide houses for persons who have never contributed to the trust". If that is wrong then isn't it also wrong for employers to contribute to the trust and not get a house? There seems to be some inconsistencies here.
Arguments for increase
The PM argued for the increase in mortgage rates on the basis that it will prevent the NHT from becoming insolvent. He stated, "Between 2000 and 2008, the average rate of return on mortgages has been cut in half from 8.2 per cent in 2000 to 4.2 per cent in 2007. But the cost of funds to the NHT is 4.2 per cent ... Its reserves will eventually be wiped out." Based on the figures in the speech the average return is 4.25 per cent. When talking about billions, the difference between 4.25 per cent and 4.2 per cent is significant. And what about the higher than 4.2 per cent returns on the seven-year investment of employees' contributions? Furthermore, the main income stream of the trust is employers' monthly contributions of three per cent of total gross pay of all employees who are liable to contribute for that month, and which does not carry a cost of 4.2 per cent, as employers are not entitled to a refund after seven years. It means that there is room for operational expenses.
But let us allow the PM the luxury of using 'GSAT Gestapo-type' calculations and say he was right in his calculations and projections. There are many other alternatives to increasing an existing mortgage rate. Instead of disturbing persons who have planned their lives on six per cent, he could mandate that new mortgages will start at eight per cent. This is how some building societies do it.
Agreed with stance
Furthermore, the NHT gave $5 billion toward education transformation. I wrote an article entitled 'PM, you wrong fe trouble NHT' in which I claimed that the P.J. Patterson administration was wrong to use NHT funds in such a manner. And the then Leader of Opposition, Bruce Golding, agreed with that stance in a statement to Parliament. Therefore, all Golding needs to do now is to correct that wrong and leave the six per cent for existing mortgages alone.
In addition, there is a windfall of taxes from gasolene. That too can be used to pay the $20 billion owed by the Government to the NHT. Furthermore, the inner-city housing development is a drain on the NHT and the Constituency Development Fund should be used to pay for the debts at the NHT. And since the PM's constituency has benefited from the inner-city housing project, then he ought to make the first contribution and also encourage his constituents to pay their mortgages.
In this high inflation climate when most salaries cannot keep pace with the rising cost of living, it is wrong for the prime minister fe increase di NHT rate when there were other alternatives.
Rev Devon Dick is pastor of Boulevard Baptist Church and author of 'Rebellion to Riot: the Church in Nation Building'; for feedback, columns@gleanerjm.com.
published: Tuesday | July 1, 2008
Devon Dick
By today, most National Housing Trust (NHT) contributors would have made the new mortgage payments based on the increase from six per cent to eight per cent. Hopefully, some investigative journalism will unearth the impact of this two per cent increase on families and their ability to survive and retain their houses.
So far, only a Gleaner reporter created two scenarios about the likely cost of mortgage payments. And only The Gleaner editorial of May 8 perceived a possible crisis. In that editorial about the terms of reference for the FINSAC enquiry, The Gleaner said, "the Government should evaluate whether the proposed increase in National Housing Trust mortgages is likely to create a 'sub prime' crisis in Jamaica". But even if the Government does not want to do it, at least the media and civil society should undertake this study.
How come the Hon Bruce Golding, prime minister, could reject a proposal from the NHT to have variable interest rates, based on changes in the underlying interest rate index, yet he can increase the loan rate from six per cent to eight per cent based on the alleged poor financial status of the trust? In addition, he said in his Budget speech that "it is wrong to use NHT funds to provide houses for persons who have never contributed to the trust". If that is wrong then isn't it also wrong for employers to contribute to the trust and not get a house? There seems to be some inconsistencies here.
Arguments for increase
The PM argued for the increase in mortgage rates on the basis that it will prevent the NHT from becoming insolvent. He stated, "Between 2000 and 2008, the average rate of return on mortgages has been cut in half from 8.2 per cent in 2000 to 4.2 per cent in 2007. But the cost of funds to the NHT is 4.2 per cent ... Its reserves will eventually be wiped out." Based on the figures in the speech the average return is 4.25 per cent. When talking about billions, the difference between 4.25 per cent and 4.2 per cent is significant. And what about the higher than 4.2 per cent returns on the seven-year investment of employees' contributions? Furthermore, the main income stream of the trust is employers' monthly contributions of three per cent of total gross pay of all employees who are liable to contribute for that month, and which does not carry a cost of 4.2 per cent, as employers are not entitled to a refund after seven years. It means that there is room for operational expenses.
But let us allow the PM the luxury of using 'GSAT Gestapo-type' calculations and say he was right in his calculations and projections. There are many other alternatives to increasing an existing mortgage rate. Instead of disturbing persons who have planned their lives on six per cent, he could mandate that new mortgages will start at eight per cent. This is how some building societies do it.
Agreed with stance
Furthermore, the NHT gave $5 billion toward education transformation. I wrote an article entitled 'PM, you wrong fe trouble NHT' in which I claimed that the P.J. Patterson administration was wrong to use NHT funds in such a manner. And the then Leader of Opposition, Bruce Golding, agreed with that stance in a statement to Parliament. Therefore, all Golding needs to do now is to correct that wrong and leave the six per cent for existing mortgages alone.
In addition, there is a windfall of taxes from gasolene. That too can be used to pay the $20 billion owed by the Government to the NHT. Furthermore, the inner-city housing development is a drain on the NHT and the Constituency Development Fund should be used to pay for the debts at the NHT. And since the PM's constituency has benefited from the inner-city housing project, then he ought to make the first contribution and also encourage his constituents to pay their mortgages.
In this high inflation climate when most salaries cannot keep pace with the rising cost of living, it is wrong for the prime minister fe increase di NHT rate when there were other alternatives.
Rev Devon Dick is pastor of Boulevard Baptist Church and author of 'Rebellion to Riot: the Church in Nation Building'; for feedback, columns@gleanerjm.com.
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