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Discrimination in home loans
published: Tuesday | July 3, 2007
Stafford Perkins, Contributor
Perkins
As we approach, what is now the inevitable, Jamaica's General Election 2007, I would like to use this opportunity to bring a very important issue to the table for debate. It's themortgage business.
One of the things we notice when Jamaicans migrate to the United States is the speed with which many acquire homes. The reason for this is the very liberal mortgage lending policy in the United States. There are also very strict laws protecting home-loan borrowers against discrimination because of race, sex, age and place of origin.
However, a very important factor in the mortgage equation is the length of time one is given to pay back a home loan. In the United States, the minimum years most people are given to pay back a home loan is 30 years. There are even some lending institutions which are now offering 50 year mortgages.
Paying back your mortgage
The problem with home ownership in Jamaica is that you can only get a 30-year mortgage if you are 20 years old. If you are 50 years and older you are given only five to 10 years to pay back your home loan. This is where we have serious problems with home ownership in Jamaica. Because the monthly payment becomes prohibitive for those over 50 wishing to purchase a decent sized home, they are forcing people to live in match-box homes.
The truth is, if there were 30-year mortgages for everyone, regardless of age or sex, people would be able to afford much better homes than they are now forced to buy. Using a formula of 70 cents to the 100,000 which is the base used to calculate home loans in the U.S., a $2 million mortgage would give you an approximately $14,000 monthly payment, while a $10 million mortgage would give you a monthly payment of about J$70,000.
These are obviously two extremes, but the point is people at both ends of the spectrum would be better able to afford a mortgage. And, of course, if the age discrimination is removed, almost everyone would be able to better participate in this very important milestone.
There is an even more important factor in this mortgage equation. With the age limit removed, a whole new industry would be born creating literally thousands of jobs and billions of new money flowing into the financial sector. Along with the birth of a vibrant buying and selling of mortgages between financial institutions, there would also be the emergence of the Mortgage Backed Security (MBS) industry.
Us multi-trillion dollar business
In the U.S., the MBS industry is a multitrillion-dollar business. The way it works is financial institutions which offer mortgages, pool these mortgages and sell them in lots. The holders of these mortgages lend and borrow these pools of mortgages on which they charge a fee. At the end of the day, they make huge profits on these transactions resulting in this multitrillion-dollar industry.
There would be a much bigger explosion in the construction industry since home owners would be able to refinance their homes at more favourable rates and equity could be taken out to finance the creation and ownership of businesses and even larger homes which we all love. This would not be restricted to just afew people but many.
I would dare to say that there are many people in Jamaica who know this MBS industry well and who can testify that what I mention so far is real. I happen to work in this industry so I know enough to write with authority. I think this would be a very good topic to bring to the table should there be any debate between the aspirants for the next prime minister of Jamaica.
Stafford Perkins is a former Jamaican-based journalist now residing in the United States. Email kingjams@msn.com
published: Tuesday | July 3, 2007
Stafford Perkins, Contributor
Perkins
As we approach, what is now the inevitable, Jamaica's General Election 2007, I would like to use this opportunity to bring a very important issue to the table for debate. It's themortgage business.
One of the things we notice when Jamaicans migrate to the United States is the speed with which many acquire homes. The reason for this is the very liberal mortgage lending policy in the United States. There are also very strict laws protecting home-loan borrowers against discrimination because of race, sex, age and place of origin.
However, a very important factor in the mortgage equation is the length of time one is given to pay back a home loan. In the United States, the minimum years most people are given to pay back a home loan is 30 years. There are even some lending institutions which are now offering 50 year mortgages.
Paying back your mortgage
The problem with home ownership in Jamaica is that you can only get a 30-year mortgage if you are 20 years old. If you are 50 years and older you are given only five to 10 years to pay back your home loan. This is where we have serious problems with home ownership in Jamaica. Because the monthly payment becomes prohibitive for those over 50 wishing to purchase a decent sized home, they are forcing people to live in match-box homes.
The truth is, if there were 30-year mortgages for everyone, regardless of age or sex, people would be able to afford much better homes than they are now forced to buy. Using a formula of 70 cents to the 100,000 which is the base used to calculate home loans in the U.S., a $2 million mortgage would give you an approximately $14,000 monthly payment, while a $10 million mortgage would give you a monthly payment of about J$70,000.
These are obviously two extremes, but the point is people at both ends of the spectrum would be better able to afford a mortgage. And, of course, if the age discrimination is removed, almost everyone would be able to better participate in this very important milestone.
There is an even more important factor in this mortgage equation. With the age limit removed, a whole new industry would be born creating literally thousands of jobs and billions of new money flowing into the financial sector. Along with the birth of a vibrant buying and selling of mortgages between financial institutions, there would also be the emergence of the Mortgage Backed Security (MBS) industry.
Us multi-trillion dollar business
In the U.S., the MBS industry is a multitrillion-dollar business. The way it works is financial institutions which offer mortgages, pool these mortgages and sell them in lots. The holders of these mortgages lend and borrow these pools of mortgages on which they charge a fee. At the end of the day, they make huge profits on these transactions resulting in this multitrillion-dollar industry.
There would be a much bigger explosion in the construction industry since home owners would be able to refinance their homes at more favourable rates and equity could be taken out to finance the creation and ownership of businesses and even larger homes which we all love. This would not be restricted to just afew people but many.
I would dare to say that there are many people in Jamaica who know this MBS industry well and who can testify that what I mention so far is real. I happen to work in this industry so I know enough to write with authority. I think this would be a very good topic to bring to the table should there be any debate between the aspirants for the next prime minister of Jamaica.
Stafford Perkins is a former Jamaican-based journalist now residing in the United States. Email kingjams@msn.com
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