The housing sector has suffered a lot of neglect as a result of negligible financing and unworkable policies. Then, the Central Bank of Nigeria (CBN) came up with a new policy with the establishment of mortgage companies (MGCs) to further deepen the mortgage market and stimulate access to mortgage finance through sharing of credit risks with mortgage lending institutions. OKWY IROEGBU-CHIKEZIE reports that the new policy may be the long-awaited stimulant for the sector
THE unsatisfactory performance of the housing finance system and institutions has been attributed to the problems of poor access to finance, underdevelopment of land tenure system and the inability of financial systems in providing low cost finance that meets the need of low and medium income groups.
Statistics show that while mortgage markets are slowly emerging in many African countries, substantial barriers still hinder their growth and expansion, especially in Nigeria. A recent study by the World Bank listed the major constraints to include lack of affordability; absence of information for risk assessment; lack of long-term funding and title insecurities. For instance, in 2007, about N70 billion was injected into the formal housing finance sector, less than 0.5 per cent of the Gross Domestic Product (GDP).
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), Central Bank of Nigeria (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.
It looked at factors hindering the growth of the primary mortgage market, and reducing the costs of residential mortgages and available housing to working Nigerians.
NMRC was founded as a private sector-driven company with the purpose of bridging the funding cost of residential mortgages and promoting the availability and affordability of good housing to working Nigerians by providing mortgage lending banks with increased access to liquidity and longer-tenored funds in the mortgage market.
It had a vision to encourage and promote home ownership in Nigeria and encourage financial institutions to increase their mortgage lending by providing them with long-term funding; to increase the maturity structure of mortgage loans and assist to reduce mortgage lending.
For all the good intentions of the government, the programme seemed not to have delivered as the country still struggled with a housing gap of over 17 million.
Last week, the CBN came up with MGC with a key component of further deepening the mortgage market through increased access to mortgage finance and sharing of credit risk with mortgage lending institutions. It is also expected to further 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.
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. CBN also put in 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-licencing inspection as a requirement to the grant of a final licence to operators.
“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,” the policy document stated.
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.
Experts hoped that the new policy would stimulate the sector and make housing finance accessible to the greater percentage of the populace.
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