BY EMEKA EJERE

The Central Bank of Nigeria (CBN) is making frantic efforts to reposition the housing financing institutions with a view to stimulating access to mortgage finance through the sharing of credit risks. The apex bank is piloting the new move following its circular for the regulation of the operations of the Mortgage Guarantee Companies (MGCs) late last year.

The MGCs are expected to further deepen the mortgage market through increased access to mortgage finance and sharing of credit risk with mortgage lending institutions. The nation’s mortgage subsector has not performed satisfactorily over the years, no thanks to poor access to finance, the underdeveloped land tenure system, and the inability of financial systems to provide low-cost finance that meets the need of low and medium-income groups.

The subsector has also suffered a lot of neglect by way of negligible financing and unworkable policies on the part of the government. The result has been an inability of the mortgage lenders to achieve the mandate of creating mortgages to improve homeownership in order to address the housing deficit in the country.

It was against this backdrop that the government came up with the idea of the Nigeria Mortgage Refinance Company Plc (NMRC), a key component of the Nigeria Housing Finance Programme initiated by the Federal Ministry of Finance (FMOF), the CBN, Federal Ministry of Lands & Urban Development & Housing and the World Bank-International Finance Corporation (IFC) Group, with the principal objective of addressing long-term-funding constraints.

The NMRC was incorporated on 24 June 2013 as a public limited liability company registered with the Securities & Exchange Commission (SEC) and regulated by the CBN as a non-deposit taking financial institution with the core activity of refinancing mortgages.

NMRC was set up to bridge the funding cost of residential mortgages and promote the availability as well as the affordability of good housing to Nigerians by providing increased liquidity in the mortgage market through the mortgage and commercial banks.

In other words, the NMRC was incorporated as a public limited liability company licensed to provide mortgage-lending institutions with access to long-term finance at an affordable interest rate, thereby enabling mortgages to be issued by these institutions to Nigerians, at longer tenors and affordable rates.

But the good objectives of the programme do not seem to have been achieved as findings show that the country is still grappling with a housing gap of over 22 million. Consequently, as part of wider plans to overhaul housing financing institutions in the country, a fresh move to enable mortgage lenders to achieve the mandate of creating mortgages to improve homeownership is in the offing.

Specifically, MGC is to support mortgage originators such as Primary Mortgage Banks (PMBs) and commercial banks to increase mortgage lending by guaranteeing or partially guaranteeing against losses resulting from borrower defaults on their residential mortgages.

MGC will also facilitate increased access to housing finance by reducing or replacing the requirement for equity contribution that would otherwise disqualify mortgagors from accessing mortgages as required by the uniform underwriting standards.

Under the financial requirements, a prospective company seeking license would have a minimum paid-up capital N10 billion, non-refundable application N100,000, non-refundable licensing fee of N1 million and change of name fee N50,000.

Leading the way

BusinessHallmark gathered that the stringent measures for the establishment for the MGCs and the COVID-19 pandemic impacted on the MGC scheme, as no single application was received seven months after.

But the CBN is taking the bull by the horn and has decided to float the Nigeria Mortgage Guarantee Company (NMGC), which will be licensed under the newly issued guidelines. NMGC is expected to be the forerunner for the scheme in the country.

In the proposed company, CBN will help capitalize NMGC with N7.5 billion and offload after five to eight years. The Nigeria Mortgage Refinancing Company is coming into the deal as the anchor institution, which is willing to provide N2.5billion out of N10billion required minimum equity capital.

NMGC will invest in government securities; assume ownership of a foreclosed residential property if a lender is unable to dispose of it provided that such holding will not exceed 20 per cent of its shareholders’ fund unimpaired by losses without the bank’s prior written approval.

The mortgage guarantee firm will also issue bonds and notes to fund its operations; provide technical assistance to lenders on credit and business development-related activities to increase industry expertise.

CBN deputy director, Adedeji Adesemoye who confirmed the development said: “it’s not the licensing condition that is stringent but mortgage guarantee Company is not business of commoners. It’s a specialized financial institution. The private equity market is seriously affected by the current economic outlook.”

Adesemoye, who doubles as a director in Federal Mortgage Bank of Nigeria (FMBN), disclosed that the National Pension Commission (PENCOM), is willing to partner in the use of NMGC services to release some proxy securities for holders of Retirement Savings Account (RSA); to utilize 25 per cent of their pension savings as equity deposit to own their home under a sustainable mortgage loan agreement.

According to the apex bank’s policy document, as a credit risk transfer mechanism for mortgage lenders, MGC is to enable management of portfolio concentration risk and serve as a basis for capital relief in the computation of capital adequacy ratios on mortgage assets.

The CBN also added other requirements to ensure that only those who are in the sector to facilitate mortgages for the public are allowed to operate to forestall what led to the collapse of mortgage institutions before now by also instituting pre-licensing inspection as a requirement for the grant of a final licence to operators.

The policy document stated in part: “The CBN shall inspect the premises and facilities of the proposed MGC to, among others, check the physical structure of the office building and infrastructure provided for take-off; sight the original copies of the documents submitted in support of the application for licence; meet with the board and management team whose CVs had earlier been submitted; and verify the capital contributions of the promoters.

“A detailed feasibility report shall include the aims and objectives of the proposed MGC, including the vision and mission statements; strategy for achieving the aims and objectives; branch expansion programme if any within the first five years; proposed training programmes for staff and management, as well as succession plan; and a five-year financial projection for the operation of the MGC, indicating expected growth and profitability.”

Underscoring the importance of the new policy, the apex bank stated that the MGC shall not engage in unrelated activities, including acceptance of demand, savings, and time deposits; grant consumer, commercial or mortgage loans; originate primary mortgages; or finance real estate construction.

Others are that they must not be involved in estate agency or facilities management; project management on real estate development; management of pension funds or schemes; foreign exchange, commodity, and equity trading.

Speaking on the way forward for Nigeria’s housing deficit, a mortgage financing expert, Esther Onoji, said,  “The housing and construction sector, if properly administered, has the capacity to produce a tremendous multiplier effect on the broader economy of any nation through forwarding linkages to the financial markets and backward linkages to land, building materials, furniture, and labour markets.

“Nigeria is estimated as of 2015 to have a housing deficit of approximately 17 million and it is projected that about N59. 5 trillion will be required to remedy the gap in this sector.

“Of all the challenges to the housing sector, limited access to finance stands as a major drawback requiring immediate intervention. The issue with finance can be traceable to underdevelopment in our mortgage industry as it reportedly generated less than 200,000 transactions between 1960 and 2014.”

Ayo Ibaru, chief operations officer at northcourt real estate said Nigeria is underestimating the size and complexity of the housing deficit problem as a country, adding that the government needs to establish a framework under which affordable housing components can play.

Speaking at the fourth edition of the Real Estate Outlook recently held in Lagos, Ibaru said, “You can say affordable housing as many times as you want but if there isn’t a place where the developers, investors and end-users can plugin, it will just be a pipe dream. By framework, I mean what are the conditions the government is willing to create to ensure a win-win solution for everyone?

“This idea of developers, financiers, investors, professionals coming together to invest their time and money in a third world economy without any form of return is something we should forget very quickly.”

According to the World Bank Report (2015), the contribution of mortgage financing to Nigeria’s GDP is close to negligible, with real estate contributing less than 5% and mortgage loans and advances at 0.5% of GDP.

There have been various initiatives by the federal government to bridge Nigeria’s huge housing deficit. Unfortunately, most of these initiatives have not yielded the desired results. The Federal Mortgage Bank of Nigeria (FMBN) established in 1956, (originally known as the Nigerian Building Society) had the strategic intent of supplying the mortgage and housing markets with sustainable liquidity in order to support the advancement of homeownership amongst Nigerians.

However, more than 60 years down the line, FMBN is yet to deliver affordable and modern houses to a majority of Nigerians, despite the obvious untapped opportunities in the housing market.

In order to fulfill the mandate of FMBN, the bank was restructured into a federal government-sponsored enterprise under the reform of the housing sector based on 2002/2006 National Policy on Housing and Urban Development.

This exercise birthed the National Housing Fund (NHF), a fund established with the objective of mobilising long-term funds from Nigerian workers, banks, insurance companies and the federal government to advance loans at soft interest rates to its contributors.