A Virgin Islands real estate lender has structured the territory’s first-ever USVI-only mortgage-backed security, which could eventually help push down local lending rates and build more buying assistance programs, a company official said.
If the term “mortgage-backed securities” had you shutter, fear not: A lot has changed since 2007, when a $6 trillion house of cards built on risky real estate loans caused widespread economic collapse.
The investment security offered by Virgin Bay Mortgage, the territory’s largest local independent lender and servicer, is fully backed by the U.S. government, company founder Steven Pruitt said Tuesday.
Essentially, Red Hook-based Virgin Bay Mortgage will bundle and sell local mortgages to investors who take a portion of the loans’ interest as profit. It’s much like any other bond offering. Virgin Islanders won’t see any change in their loans but the money from pooling and selling the mortgages could lead to an influx of capital in local real estate lending, Pruitt said.
Bundled in a $10 million security or even a $100 million security, the mortgage packages could draw the eyes of other investors. It’s a pool of money sorely needed in a market lacking diversity in local real estate lending, he said.
“As you introduce new capital into any new space, if it works well, it tends to invite or attract other capital,” Pruitt said. “Liquidity is the key to housing, to all different housing markets.”
Unlike the 2007 and 2008 financial panic, where lenders blindly handed out mortgages to people who could not make their eventual balloon payments, modern mortgages are on firm footing. And the Virgin Islanders — whose loans are primarily backed by government-sponsored programs, such as Fannie Mae, Freddie Mac, and Ginnie Mae programs — have a strong record of making their mortgage payments even in the face of extraordinary adversity, he said.
During severe hurricanes or the global COVID-19 pandemic, forbearance grace periods granted by the federal government allowed people to get back on their feet, he said. And rather than default on their loans, Virgin Islanders and people in other storm-prone areas got right back to making their payments.
“There’s really not the performance from the investor side,” Pruitt said. “Hurricanes aren’t affecting them except for possibly a slower payment period, which actually isn’t — when you look at prepay speeds and things like that — not a bad thing.”
The upside of the mortgage-backed securities for local people is the possibility of more money for real estate buyer assistance like the VI Slice Moderate-Income Homeownership Program, he said. Pruitt envisioned more such programs that could help Virgin Islanders purchase real estate.
“We were part of that program. You know, VI Slice was providing some additional down payment assistance to help put people in homes. When you have an investment community like that and you have that liquidity, you can start to get a little creative and start creating your own products. And that in turn helps Virgin Islanders,” he said.
In a written statement on the mortgage-backed securities launch, Pruitt outlined his hopes:
- Developing Proprietary Down Payment Programs: Building on its past work as a dedicated participant in the territory’s VI Slice Program, Virgin Bay is currently developing proprietary, in-house down payment assistance programs. This initiative forms the core of the company’s ultimate goal: aggressively putting more Virgin Islanders into homes of their own.
- Commercial Real Estate Expansion: Through strategic bank partnerships established last year, Virgin Bay successfully introduced new liquidity into the commercial real estate sector. This expanded investment beyond traditional conventional and government conforming loan programs – something no other lender or broker has ever coordinated in the territory.
- Meeting the Community’s Demand for Solar: Virgin Bay recently partnered with ProSolar to source secondary market relationships to purchase solar paper, enabling a continuous flow of affordable capital for home solar installations.
- Forward Infrastructure Commitments: Demonstrating deep secondary-market relationships, Virgin Bay has already aligned with institutional investors to secure forward capital commitments for the Jackson Development Project. This guarantees buyers for the paper when the project reaches the critical financing stage, creating a clear pathway for local residents to transition from renting to owning.
There was another differentiator from large, mainland-based lenders offering mortgages, he said. Although Virgin Bay Mortgage is a subsidiary of Pike Creek Mortgage Services in Delaware, the company has promised not to sell Virgin Islanders’ financial data to other banks or lenders.
Virgin Bay Mortgage will continue to service each of their loans, meaning purchasers of their mortgage-backed securities can’t gain a foothold in the local market through proprietary loan information.
“When that happens, they’re basically transferring the client’s financial data set to the buyer,” he said. “The buyer is a huge servicer that is also now in the real estate business. And the reason they’re buying those loans is to tap into our real estate community. They want to take a piece of our realtor brokerage’s commissions in the future.”
