News Column

We See Robust Mortgage Sector Coming - Experts

August 28, 2014

Stakeholders and experts in the nation's mortgage sector have signified their readiness to work with the nation's mortgage refinance company, Nigeria Mortgage Refinancing Company (NMRC), just as they claimed that the end to liquidity strain and lack of mortgages in the country seems near considering the commitment of the Federal Government, the World Bank and other relevant agencies. Our Correspondent, Bamidele Ogunwusi, writes.

Leading forces in the sector, which include the President of the Mortgage Banking Association of Nigeria (MBAN), Mr Femi Johnson, Managing Director of Trans Atlantic Mortgages, Preye Ogriki ,Managing Director of ASO Saving and Loans, Hassan Musa Usman and the Advisory Partner to the NMRC and the Principal Partner, G. Elias and Co., Dr. Gbolahan Elias, have unanimously given their support to the company with the hope that the company will be able to sweep away the toga of an inactive mortgage sector.

Johnson, President, Mortgage Banking Association of Nigeria and Managing Director of Homebase Savings and Loans, who is also a board member of NMRC, said the company is what Nigerians have been looking for in a very long term and that it would refinance loans that had already been originated by mortgage lenders.

He said, "Now, these loans ought to have been seasoned for six months, meaning that as a mortgage lender, if I grant you a loan, before the NMRC refinances it, you must have repaid for six months in six installments for them to be sure you are a good borrower. The NMRC is bring sanity to the nation's mortgage sector.

"So, if we say the NMRC is going to start by the end of the year, means that the loan that will be refinanced must have been granted now. So, technically, the effect of the NMRC is starting now once we complete the underwriting standards. Underwriting will begin, loans will be granted now in preparation for refinancing six months after."

At the end of a recent workshop, it was stated that the forum was aimed at providing support for the housing finance sector in the country by developing criteria for acceptable mortgage loans for refinancing by the NMRC, including payment performance, financial terms, legal contract terms, mortgage loan product designs, mortgage loan underwriting criteria, and the contents of mortgage loan documents.

The NMRC is expected to engage with stakeholders on the key components of the model mortgage law, which is expected to eliminate the current challenges in titling, land administration, mortgage registration and enforcement, thereby improving standardisation.

Dr. Gbolahan Elias, said the mortgage company was also working on the foreclosure law, adding that it was the aim of the company to have some uniformity in mortgage practice nationwide.

"If we are going to have a pool of mortgages, there has to be some guidelines, otherwise it becomes difficult to say what the rules are. We are at the process of drafting a model law to be drafted by the states," he said.

Elias said one of the issues the uniform law hoped to achieve was the land law, which he said was a major challenge to mortgage lending.

He said, "Land law is a state matter not a federal matter; so, to achieve uniformity, you cannot change the law at the federal level.

"The Federal Government cannot impose laws on the states as regards this because each state in principle can have its own laws relating to land.

"So, the approach has to be to offer an incentive for all of the states to say we will not take mortgages on land in the states unless the states fulfill certain minimum criteria such as the cost and amount of time it takes to get a mortgage and to enforce it.

"Based on this, we are not enforcing a single law nationwide but we are going to suggest a set of minimum standards that a state must have for the residents to take advantage of what the NMRC has to offer. There's a challenge of the amount of time it takes to process a mortgage in a state; the NMRC is hoping to address this, it should not take too long.

"If we have a situation where a mortgage application has to go through 27 desks for signature, for instance, it won't be done in less than six weeks. The overall time spent on stamp duty, governors' consent and all the other processes has to be reduced."

Preye Ogriki, Managing Director of Trans Atlantic Mortgages, said the sector will witness more robust players with 'new capacities' to meet the needs of the market and that the refinancing window which NMRC represents is another big opportunity for mortgage banks.

His words: "The earlier phobia of running out of steam midway in the mortgage finance cycle which has an average life-span of 10-years is no longer there as a result of the availability of the NMRC and the FMBN which, between them, can take the market to the next level where we will be talking about housing bonds in the capital market with universal applications (ie open to all investors) for banks and the pension funds institutions. This promises enormous funds mobilization for the housing and mortgage sectors in the near future.

He said the expectation of the public including him is that the NMRC will offer the mortgage sector two sources of comfort: Standardization of Mortgage Products, and additional funding opportunities for mortgages and mortgage banks.

"Standardization has the effect of making all mortgages look similar irrespective of the source or origin of the mortgage. It would make mortgage products look like shopping in an electronics shop where you have several brands of televisions but what you are sure of is that each of them will work satisfactorily when installed! It is really standardization that will act as the attraction and unlock the sources of investible funds from the pension funds and commercial banks into the housing and mortgage refinance sector in the future.

"Another primary activity of the NMRC would be to use the bonds floated as a result of its standardization work to raise tier 2 long-term capital for mortgage banks. This will make it possible for PMBs to finance developers on the supply side as well as grant individual mortgage loans to customers on the demand side. And because this process is self-sustaining; it is assured of continuity and growth over time".

"There are several reasons why it is most probable (about 90% in my opinion) that the NMRC will perform satisfactorily as a refinancing vehicle for mortgages in the country. The first reason is the fact that it is starting off with a sizeable long-term core capital, unlike commercial banks. Secondly, the NMRC enjoys the Sovereign Guarantee of the Federal Government of Nigeria. This implies that any debt note authorized by the NMRC is automatically of investment grade or what is commonly called 'prime investment grade' instrument. This implies that the NMRC will continue to attract funds from the capital market to fund its operations in the mortgage sector.

"Thirdly, the composition of the NMRC is another strong factor that will ensure its long-term survival and continued operations. The institutions which have come together to set up the NMRC are in themselves, international benchmark champions of good corporate governance in action. The major reason for failure of Government financial institutions have been the lack of transparent good corporate governance in the administration of such institutions. The presence of international institutions in the Board of the NMRC such as the World Bank, the Central Bank of Nigeria, Shelter Afrique, ADB and other commercial banks and PMBs will definitely encourage the sustained practice of good corporate governance in the running of the NMRC.

"In summary therefore, NMRC has access to funding options which is self-sustaining. Add to that the integrity and expertise of the Board Members and the practice of good corporate governance. Like I said earlier, what will come across as news is not that NMRC will perform creditably well in future, this outcome is very well expected by all stakeholders and public. What will be news indeed is really that NMRC is not able to perform? That will be news indeed and the world and Africa are watching to confirm which way it would be. I am however confident that NMRC will succeed and be a leading light for the mortgage sector in the years to come", he concluded.

Managing Director of ASO Savings and Loans, Hassan Musa Usman, believes the NMRC will open a new vista of hope in helping developers in the country have funds to provide more housing units.

He expects that the company would help in the quest to increase housing stock in the country.

According to him, "it means that we as mortgage bankers can now create more mortgages for 10 to 20 years or so, knowing very well that whatever we create, we can sell up to the Mortgage Refinancing Company.

"The NMRC will in turn issue long-term bond in the market, as it can afford to wait for the entire money (loan given out) to be paid. But we (mortgage banks) can pay up our own cash, go back and access new loans. What this means is that, for instance, with just N100 million, I can conveniently go and create loans worth N100 billion, package them, and after three months, sell them off to MRC. Then I can get loan worth N100 million from them and afterwards go back and create fresh loans. This can be done over and over again."

He further explained that the move would help to deepen the Nigerian mortgage market and housing sector as a whole; because it also meant that there would be longer tenure for mortgages than it is right now.

"This is because most mortgage banks usually get short-term money, but for them to be able to function properly, they need long-term funding. The NMRC will be able to solve this problem by issuing long term bond which will go a long way in deepening the market. You will agree with me that someone who takes a mortgage and is asked to pay within five years will find it more difficult to pay back than another person who has 15 to 20 years to pay back, because the latter provides a more affordable means of paying back. So it is a very major development for the housing sector and a big initiative on the part of the government," he stressed.

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Source: AllAfrica

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