The Nation Newspaper

Tag: mortgage

  • How far can new mortgage finance go?

    How far can new mortgage finance go?

    President Goodluck Jonathan recently inaugurated the Nigeria Mortgage Refinance Company in a bid to ensure more Nigerians get their own houses. In this report, Joe Agbro Jr. examines why most Nigerians still find having a roof over their heads a challenge

    Wherever a man lays his head is his home,’ goes a popular English saying. But while that cliché usually describes a vagrant, it is nevertheless the desires of many men (and women) to have a roof of their own. And since the time of having simple houses, this desire rather than wane, has been on the increase. However, going with the financial implications of owning homes in these modern times, it is now an Herculean task to own a house now. Just ask the number of Nigerians dreaming to have their own house.

    Inadequate roofs

    According to Adeyeye Ogunwusi, the managing director of Gran Imperio, a consortium in the building industry, there is indeed a housing deficit in Nigeria. But how does one check this awning deficit is the challenge. The truth is that Nigeria needs about 17 million housing units to come out of its deficit.

    Unlike other means of buying houses which may involved the bulk payment, buying houses via mortgages should be convenient as loans are provided. And the officially recognised institution regulating mortgages in Nigeria is the Federal Mortgage Bank of Nigeria (FMBN), which was established as the Nigerian Building Society in 1956. And following the indigenisation Act of 1973, the federal government acquired 100 per cent ownership of the NBS.

    Designed to offer mortgage lending services to all segments of the population, FMBN started a contributory savings scheme called the National Housing Fund (NHF), which was established by Act 3 of 1992. The NHF is a pool of funds from Nigerian workers, banks, insurance companies and the federal government to advance loans at soft interest rates to contributors. In 1994, the FMBN, following the promulgation of the FMBN Act 82 [1993] and the Mortgage Institutions Act 53 [1989], became an apex mortgage institution and a new company, Federal Mortgage Finance Limited (FMFL), was form to take the FMBN’s retail functions.

    To meet its mandate, the FMBN has shifted operational emphasis to expand its functions from only social housing on-lending under the NHF to include commercial on lending for housing, commercial mortgages refinancing, mortgage purchasing and warehousing and Mortgage-Backed Securitisation. Under this mandate it finances mortgages created by primary mortgage institutions (PMI) under the National Housing Fund Scheme and also gives estate development loans (EDL) to real estate developers.

    But in Nigeria, mortgages are not common. And according to the ministry of finance, there are about 20,000 mortgages open in Nigeria. And in most cases, the mortgages do not extend beyond 10 years. This is contrary to the aims of the FMBN which is to assist all levels of Nigerians own homes with convenient payment modes.

    To Adeniyi Akinlusi, the managing director of Trustbond Mortgage Bank, the fact that housing finance lack long-term funding is detrimental to achieving housing for all Nigerians. With a deficit of over 17 million housing units, the Trustbond boss said, Nigeria as a huge potential in housing but then, this is something unachievable given the poor attention to the housing sector.

    ‘Unlike the USA which has 85 per cent housing ownership rate,’ Akinlusi said, ‘ Brazil 53 per cent, Benin Republic and South Africa with 61 and 56 per cent housing rate respectively, Nigeria has a paltry 25 per cent home ownership rate. So, there is need to fill the gap. For instance, if we can provide N3million for each of the 17 million units, that is N56trillion, a lot of money by any standard which no single organisation can undertake except different crop of investors come into the sector.’

    Charting a new path

    However, in a bid to bolster the housing sector, President Goodluck Jonathan recently launched the Nigeria Mortgage Refinance Company (NMRC) in Abuja. The president decried the short tenure on loans by commercial and mortgage institutions in the country. He also hopes the NMRC would alleviate the constraints holding back the rapid housing development going on all over the states.

    Also at the launch of the NMRC in Abuja, Ngozi Okonjo-Iweala, the coordinating minister of the economy, had acknowledged the high lending rates in the range of 20 and 23 per cent. Being optimistic too, she hoped the lending rates will come down to low double digits or high single digit, saying; “This company is being set up to help lower the funding cost of mortgages and promote the affordability and availability of good housing to working Nigerians by providing mortgage lending banks increased access to liquidity and longer-term funds in the market.”

    The plan is that the NMRC will refinance mortgages originating from primary mortgage lenders. Armed with a N6 billion capital and a $300 million World Bank-approved International Development Association (IDA) loan, the NMRC is set for business.

    But, Head of research at Fidelity Bank, Francis Ikenga, reacting to the move said; “The $300 million is a drop in the ocean but it’s a move that is important to activate the secondary market.”

    Regarding housing for all Nigerians, Ogunwusi thinks this is possible but he pointed out that certain factors such as the prohibitive cost of perfecting land titles by government must be addressed.

    “It (cost of processing land titles) should be brought down,” he said. “It is a bit high between eight and 12 per cent to perfect titles.”

    This is no doubt important because one of the eligibility requirements for having a mortgage is having a valid title to the piece of land on which one intends to build. Now, if a company involved in real estate can still have challenges accessing the required documentation, it must definitely not be a tea party for an individual trying to access these housing loans.

    Concerning mortgaging, Ogunwusi who said most Nigerians do not like to look at things on a long-term basis believes that the mortgage system should be given another chance, especially on the heels the federal government’s setting up of the NMRC.

    “Mortgage system is not very active,” he said. “Everything is cash-driven. That is the reason why we are having another problem of acute housing crisis. What federal government is doing might not 100 per cent solve the problem, it is going to take us very far. With that, that kind of corporation (NMRC) can leverage on bonds and access capital to bring the cost of mortgages down. But with the way things are happening now, things that have not happened before are happening now. Let us give the system a chance. Things will naturally take shape.”

    Hitherto, perhaps, because mortgages involves a long-term process of being indebted to the mortgage company, many Nigerians, seem to prefer resorting to laying brick over brick, through the years, and managing meagre finances along the way. And in some instances, not completing the building project at all, hereby reducing home ownership among Nigerians.

    Among the benefits of plugging into the NHF includes accessing loans up to 90 per cent of the cost of the desired house up to the tune of N15m, a fixed interest of 6 per cent per annum on mortgages, and long repayment period of up to 30 years.

    Though, Nigerians will start benefiting from the involvement of the NMRC in June, some players in the mortgage sector are already optimistic. According to a news report, Femi Johnson, president of the Mortgage Banking Association of Nigeria and the managing director of Homebase Mortgage Bank, the move by the federal government to refinance mortgages will bring about low interest rates in the sector.

    And while NMRC is poised to deliver about 750, 000 homes annually, it also seeks to create an enabling environment with mortgage banks and other financial institutions to offer long term mortgages of between 15 and 20 years to Nigerians at affordable rates. The current practice among developers is that customers are asked to deposit around 30% of the cost of the building they are interested in while paying for the remainders within 10 years.

    Out of the $300 million loan, NMRC would disburse $250 million in instalments as tier-2 capital. And according to Okonjo-Iweala, $25 million will be used to set up a mortgage guarantee facility for low income borrowers while $25 million will be used to strengthen the FMBN’s mass-housing drive as well as microfinance institution’s capability to lend to low-income citizens.

    Plugging into the fund

    The NHF scheme is open to all Nigerians who cannot afford a commercial housing loan. An intending beneficiary must be a registered contributor and be up to date with his or her contributions. To qualify, one must contribute at least 2.5% of his or her basic monthly salary and can access a loan after contributing for six months. A contributor interested in accessing NHF loan can apply through registered and accredited Primary Mortgage Institution (PMI) who forwards the application to the FMBN. He or she would also need to provide photocopies of the land title documents, three years’ tax clearance certificate, copy of his or her previous three months’ pay slip and equity contribution of 30 per cent, 20 per cent, or 10 per cent, depending on the loan amount applied for.

    These loans are repaid on a monthly basis in a convenient and affordable manner. And the only collateral needed for a NHF loan is the house itself, which can be built anywhere in Nigeria.

    While this provision is open for salaried workers, there is also another provision for non-salaried workers who wish to take advantage of the NHF platform.

    But, as stakeholders cautiously watch the terrain, only time will tell if indeed Nigerians will begin plugging into the mortgage sector.

    However, the fact is that the mortgage sector seems to be gearing towards making housing for all Nigerians a reality.

  • Mortgage financing to cost N25tr

    Mortgage financing to cost N25tr

    ABOUT N25 trillion is needed to bridge the housing gap estimated at 18 million units and growing by two million yearly, a report by Consolidated Discount Limited has indicated.

    The report, tagged: “Retrogressive view on the Mortgage Refinance Company (MRC),” said the company, established by the Central Bank of Nigeria (CBN) to assist bridge mortgage funding gap, was expected to issue N60 billion bond, which would boost the bond market.

    The MRC supports mortgage originators, such as Primary Mortgage Banks (PMBs) and Deposit Money Banks (DMBs), to increase lending by refinancing their mortgage loan portfolios.

    It said the capital market provides an important opportunity in closing this gap and, to a huge extent, has led to the development of the fundamentals associated with countries with strong mortgage systems.

    According to the report, the growth in the mortgage/housing sector through construction, is a vital means of generating employment and has played a pivotal role in enhancing productivity of the populace in countries with a sound mortgage model.

    The MRC is to provide short-term liquidity and medium to long-term funding and guarantees to mortgage finance lenders. It is expected to increase annual mortgage origination in Nigeria to 200,000 from an average of 20,000 mortgages within the next few years, representing an increase of 900 per cent.

    The firm is expected to act as an intermediary between originators of mortgage loans and the capital market which are typically looking for long-dated high quality securities. Also, the operations of the MRC are expected to enhance the development of the secondary mortgage market which is still at its infancy.

    Already the World Bank has committed $300 million interest-free capital to the project, while other local investors have equally shown interest.

    Also, Resort Savings and Loans, said it would commit N200 million to the proposed MRC. The implication of these commitments and other interests, it said, is increased funding to the mortgage/housing sector.

    “Our forecast also indicates there will be a need to access funds from the capital market if the PMBs and DMBs can pull together more mortgage originations. To a large extent, this may help to deal with one of the twin issues confronting a viable mortgage system in Nigeria,” it said.

    It said the impact of the existing land use act may constrict potential gains that would accrue from the establishment of the mortgage refinancing mechanism. The Nigerian Land Use Decree of 1978 nationalised all land in the country and notionally handed over its administration to committees constituted at state and local government level and these constitute a huge constraint to business. This limitation would have to be removed if the level of investments desired in the housing sector is to be attained.

    The report said the mortgage market in Africa is relatively small which has led to pent up demand that could serve as a major growth driver for housing in the continent. The performance of mortgage market in Africa has been strongly linked to the performance of the various economies. South Africa is the biggest economy in Africa and equally has the most decent (size and structure) mortgage system. Mortgage accounts for 26 per cent of South African’s GDP while it accounts for a one of Nigeria’s.

    Nigeria which is sub-Sahara Africa’s largest economy after South Africa has struggled to deliver housing to the population because of the high prices of the homes in the market. This constricts demand for housing in the country while also exposing mortgage finance institutions (MFIs) to increased risk of default as mortgages are priced at unhealthy double digit rates.

    Across the continent home financing has become largely accessible by mainly the upper class and the upper middle class. This can be traced in large part to the preference of the mortgage lenders for mainly corporate clients while individuals are left to access mortgage finance at exploitative rates.

    The report forecast that interest rate on mortgage from lenders to home owners (borrowers) will be cut by 50 per cent from the present 24 per cent to 12 per cent. However, it said this may not necessarily translate to affordable housing for the huge low-income population that are the most affected in Nigeria’s housing problems.

    Also, there have been no comprehensive plans on what would happen to the entities entrusted to coordinate mortgage activities in the country Federal Housing Authority (FHA), Nation such as Housing Fund (NHF) and Federal Mortgage Bank of Nigeria (FMBN).

     

  • Mortgage bank raises share capital to N10b

    Mortgage bank raises share capital to N10b

    Afirm, TrustBond Mortgage Bank, has increased its authorised share capital to N10 billion from N4.7billion, its Chairman, Etigwe Uwa, has said.

    Uwa, who spoke at the unveiling of the bank’s new name in Lagos, said regulatory and other approvals have been obtained on the transaction.

    The bank acquired the assets of Intercontinental Homes Savings & Loan (IHSL).

    He said a fundamental provision of the Share Sale and Purchase Agreement (SSPA) is that IHSL would change its name not later than six months after the completion of the SSPA, which they have done, adding that the name has been approved by the Central Bank of Nigeria (CBN) with appropriate changes done at the Corporate Affairs Commission (CAC).

    Uwa stressed that the change of ownership has not significantly changed the management team. “This is the same management team which has creditably run the affairs of the bank from its inception and grown its shareholders funds, he said.

     

     

     

     

     

  • Adoke, others seek mortgage laws reform

    Nigeria’s mortgage laws need reform to bring them up to date with modern needs, experts have said.

    The Attorney-General of the Federation Mohammed Adoke (SAN); Dean, Faculty of Law, University of Lagos, Prof Imran Smith (SAN), and National Legal Adviser of the Action Congress of Nigeria (ACN) Dr Muiz Banire said the existing laws were old.

    But the Minister of Lands, Housing and Urban Development, Ms Amal Pepple said the government had proposed amendments to some of the laws.

    They spoke in Lagos at the Real Estate Lawyers Association of Nigeria (RELAN) 2013 Summit. It had the theme: Foreclosure Law and processes in Relation to Mortgage Security in Nigeria.

    Other speakers were lawyer and International Land/Mortgage Finance expert Ms. Carol Rabenhorst and Managing Director, Aso Savings and Loans Limited, Mr Hassan Usman.

    Pepple, represented by her ministry’s Director Legal Services Ifenyinwa Njokama, believes even the foreclosure law requires amendment.

    She said: “It is pertinent to inform this august gathering that the Federal Government of Nigeria has proposed amendments to the provisions of the Land Use Act which, amongst others, are considered as inimical to efficient and effective mortgage transactions.

    “The process of obtaining consent, which has been considered lengthy and arduous, results in considerable delays in commercial transactions.

    “The attendant negative effect is discouraging investors as well as retarding mortgage transactions in the country.

    “Most players in the industry are of the view that foreclosure law is not helpful to the lender and weighs heavily against it, thereby giving latitude for borrowers to default in the repayment of their loans.

    “Foreclosure processes are also seen to be cumbersome and time-consuming,” the minister said, adding that the government was working to correct the lapses.

    Adoke, represented by his Special Assistant Victoria Mbu, said housing laws must not be complicated.

    According to him, ease and clarity in the process of enforcing mortgages, particularly the foreclosure process, are significant catalysts for achieving the country’s housing targets.

    The minister of justice said it is, therefore, important that investors are able to take possession of their collateral and recover their loans as quickly as possible.

    “The current complicated procedures in our law courts and the unduly slow pace of proceedings cast a dim pall on the chances of achieving growth in these areas.

    “Several options have been canvassed, such as specialised property courts and the de-mutualisation of mortgages, to facililate non-judicial foreclosure.

    “In my view, there is also need to focus on manpower and technology deficits in land registries and cognate institutions to complement any reform in the legal framework,” Adoke said.

    RELAN President Prof Charles Ilegbune (SAN) said lawmakers must re-examine legislations governing mortgage transactions and foreclosure, adding that global challenges call for innovations.

    “There is no better time in our legal jurisprudence to have such as discourse and reflect on a number of questions.

    “Today, Nigeria is at crossroads of its legislations governing mortgage transactions and foreclosure.

    “Did we have the right legislations in this regard in the light of the Land Use Act and the Lagos State Property and Mortgage Law?

    “Have our recovery modes had the intended effects? How can we secure lasting and sustainable growth in the real estate section while restoring the confidence of investors?

    “The continuous growth in the world’s population and the global economy, as well as the increasing demand for mortgages as a form of secured lending will continue to place a huge demand on real estate transactions,” Ilegbune said.

    Smith, who is RELAN Vice-President, said present foreclosure law paradigms are ill-equipped to address borrower, lender and third party concerns.

    He criticised inadequacies in High Court rules and limitation laws which hamper real estate growth.

    Complications, he said, arise from legal provisions for re-opening of foreclosure proceedings, slow judicial process and co-ownership of property as subject-matter of security.

    The UNILAG law dean called for legislations on anti-deficiency, redemption statutes and foreclosure moratoria, and sought more judicial activism regarding constructive trusts and unjust enrichment.

    “There should be an institution to take records of all foreclosure proceedings. Transactions must be registered,” he said.

    Smith further suggested regulation of foreclosure processes that would take cognizance of the interests of the borrower, lender and the public.

    He believes factors to be taking into account by courts when making order should be streamlined, saying: “The court must be guided.”

    Smith also proposed removal or amendment of Section 22 of the Land Use Act “to exclude foreclosures to obviate any doubts as to its non-applicability.”

    He also wants a revisitation of the application of consent in the Lagos State Property and Mortgage Law.

    Smith said a law should be enacted to regulate foreclosure proceedings to allow a mortgagee to recoup their investment.

    Banire said all property laws need a review, adding that they must address present realities.

    “From the international speaker, we have been able to have some hint about what is obtainable in other jurisdiction which we can take into consideration when reforming our own law.

    “Most of our laws on mortgages are obsolete; most of them. Definitely we need to look at them again,” he said.

     

  • What hopes for mortgage stocks?

    There are two broad sides to the stock market-the bullish upside and the bearish downside. With a full-year average gain of 35.4 per cent in 2012 and a year-to-date return of 28.25 per cent so far this year, the bullish rally portrays the impressive gains by several stocks. But it also belies the groaning pains of several struggling investors. For in mortgage subsector, there has been no difference in 2011 or 2012 and there is less to cheer about in the continuing bullish run in 2013. Taofik Salako reports that mortgage stocks appear stuck in a murky foundation of poor fundamentals and business strategies.

     

     

    Investors in several equities have been counting their gains in billions. With total capital gains of N2.44 trillion or 35.4 per cent in 2012 and a superlative accretion of about N2.54 trillion or 28.25 per cent returns so far this year, equities are undoubtedly the most attractive and best-return securities in the Nigerian securities market. Compared with negative or negligible real return of his fixed-income an average equity investor still smiles with double-digit inflation-adjusted return. Inflation currently stands at 8.6 per cent while the benchmark interest rate-the Monetary Policy Rate (MPR), is 12.0 per cent. Either way, equities make more sense than other instruments.

    But the generally, positive overall market situation belies the risks, concentrated and scattered, that still dodge equities. The mortgage subsector is one of the Achilles’ heels of the market. In its seven years, the mortgage subgroup shows little subsisting gains for investors. With the earliest company listed in 2006, all other mortgage companies were listed around 2008, riding on the back of the extremely bullish market during the 2004-2007 equity booms. They had raised huge capital, restructured their balance sheets and wooed investors, who were fascinated by the tangible underlying assets and immense opportunities in the housing sector, with high hopes of ‘concrete’ returns in the characters of the solid structures that formed their underlying assets.

    Mortgage runs on a clear business principle: a home buyer or builder obtains finance from a financial institution to complete the real estate development. Besides the demand for initial equity contribution of varied size, the property in question also serves as collateral and the ownership only fully transferred to the owner upon complete payment of the loan and the conditions thereon. The underlying assets of mortgage companies are thus private and commercial housing developments. Savings and loans companies, otherwise known as primary mortgage institutions (PMI), therefore mobilise savings from customers, mostly prospective home owners, and distribute such deposits to needy customers. They also serve as veritable vehicles for implementation of the government’s housing initiatives such as National Housing Fund (NHF). As financial intermediation companies, PMIs are regulated by the Central Bank of Nigeria (CBN). Quoted mortgage companies are also regulated by the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE).

    With housing estate sprouting all over, the combination of the real estate boom and stock market boom had given many investors the beliefs of a one-for-two deal. This much was also evident in the historic emergence of the Real Estate Investment Trust (REIT), which also had its primary assets in real estate, on the stock market. But with post-listing results, mortgage companies appeared to have suffered a fatal failed start; they appear yet to recover from the trauma. This is related by the share prices and underlying fundamentals of the four mortgage companies.

     

    Losing on both sides

    Against the background of year-to-date return of 20 per cent in the banking subgroup, mortgage stocks are stuck mostly at their nominal values. Abbey Building Society, the three other stocks in the subgroup- Aso Savings and Loans Plc, Resort Savings and Loans and Union Homes Savings and Loans have stagnated at their nominal value of 50 kobo since 2011. Abbey Building Society itself replicates the stagnation in the subgroup. Its share price opened 2012 at N1.44 and closed at N1.37. It has stuck at N1.43 so far this year, underlining the negative return since 2011.

    The nominal share prices largely reflected the poor operational results of the mortgage companies. Audited and interim reports of nearly all the companies have shown considerable declines over the years. Three-year audited reports and accounts of Union Homes showed gradual built up in losses and erosion of the capital base since 2009, cumulating in a negative net assets of N2.59 billion in 2011, the last audited year available for the company. The Nigerian Stock Exchange (NSE) has tagged many mortgage companies for late rendition of periodic earnings reports.

     

    Union Homes

    Union Homes’ turnover increased from N5.52 billion in 2009 to N7.22 billion in 2010 and slumped to N5.86 billion in 2011. All through the years, the company recorded losses with loss before tax of N1.32 billion, N9.54 billion and N2.67 billion in 2009, 2010 and 2011 respectively. Net loss after tax stood at N1.67 billion, N6.55 billion and N2.39 billion in 2009, 2010 and 2011 respectively. The company’s total assets dwindled consecutively from N51.83 billion to N49.01 billion and N42.04 billion. Shareholders’ funds declined from N5.71 billion to N1.90 billion and turned into a deficit of N2.59 billion in 2011.

     

    Aso Saving

    Also, audited report and accounts of Aso Savings for the year ended March 31, 2012 showed that gross earnings dropped from N11.01 billion in 2011 to N10.79 billion in 2012. Profit before tax slumped to N301 million as against N1.90 billion while net profit after tax dwindled from N1.21 billion in 2011 to N129.30 billion in 2012. However, while net assets dropped marginally from N3.01 billion to N3.14 billion, the company still had total assets of N86.24 billion.

     

    Resort Saving and Loans

    Resort Savings and Loans showed a less worrisome outlook, though profit remained substantially lower than previous performance. Interim report and accounts of the mortgage banker for the period ended September 30, 2012 showed that gross earnings improved to N964.45 million in 2012 as against N945.93 million recorded in comparable period of 2011. Profits before and after tax stood at N90.76 million and N63.53 million compared with N211.52 million and N148.06 million recorded respectively in the comparable period of 2011. However, the third quarter report represented significant improvement on the full-year report for 2011, when the company posted net loss of N979.43 million. Audited report for the year ended December 31, 2011 had shown pre-tax loss of N939.43 million while gross earnings stood at N1.21 billion. The third quarter report showed that the company moved farther away from the brinks and built up equity funds far above new capital requirement of N5 billion for national mortgage banker. Net assets stood at N5.73 billion in third quarter 2012 as against N4.03 billion in third quarter 2011 and N2.87 billion recorded as closing figure for 2011.

     

    Building on weak foundation

    The deteriorating fundamentals of mortgage companies underlined the adverse effects of wrong investment strategies and poor corporate governance. Stashed with new funds, the mortgage bankers had embarked on spending sprees, diverting funds from their core real estate and housing investments to personal investments and the stock market. Mortgage companies were reported to be carrying several bad loans from the huge funds poured into the stock market bubble between 2007 and 2008 and were trapped in unrealizable assets as recession set in mid 2008.

    A report by one of the mortgage companies described how former directors and other insiders built up nearly N4 billion in outstanding non-performing loans, more than three-quarter of the company’s total balance sheet size. The former directors, who resigned in 2011, their family members and related companies took various loans through various instruments such as mortgage, overdraft, term loan, lease, staff loan and subsequently turned away from servicing the loans. The report showed that the former directors and their cronies were indebtedness to the tune of N3.99 billion when the company’s total assets and shareholders’ funds were N5.24 billion and N2.87 billion respectively. Out of the 25 insider credits totaling N3.99 billion, only one loan of N15.44 million, less than 0.4 per cent of total insider credits, was performing.

    In the largest instances of the insider loans, the former directors awarded several loans to another quoted company where they served as directors. The report indicated that about N2.81 billion non-performing loans were related to that company, which engages in fund management, capital market operations, financial advisory and portfolio management. The immediate past chairman of the company reportedly took several personal loans with about N42 million outstanding as non-performing on three facilities.

     

    Bad capital, new capital

    Still struggling with poor market perception, mortgage banks now face the challenge of recapitalisation. Most mortgages banks need to raise new equity funds to meet new minimum capital requirement under the new Central Bank of Nigeria (CBN)’s policy framework for mortgage banks.

    Under the new CBN’s framework for mortgage banks, they will be classified into national and state mortgage banks, with the geographic demarcation as benchmark for minimum capital requirement. National mortgage banks are authorized to operate in all states of the Federation while state mortgage banks are restricted to their registered state. National mortgage banks are required to have minimum capital base of N5 billion while state mortgage banks are required to have N2.5 billion.

    Both Resort Savings & Loans and Aso Savings are already in the process of raising funds. The NSE late last month approved combined floatation of initial public offering (IPO) and rights issue for Resort Savings. Under the hybrid offer, Resort Savings will be issuing more than 3.333 billion ordinary shares of 50 kobo each at a price of 51 kobo through the IPO. It will also simultaneously issue 3.6 billion ordinary shares of 50 kobo each at the nominal value to existing shareholders. Altogether, Resort Savings hopes to raise about N3.5 billion.

    Aso Savings and Loans had earlier floated a rights issue of 11.05 billion ordinary shares of 50 kobo each at 60k per share.

    Besides concerns about their historical fundamental performances, the capital raising efforts of the mortgage banks could be hampered by both the general lackluster state of the inactive primary segment of the capital market. There is also the issue of large outstanding share capital of mortgage banks relative to their assets base, which could encumber new fund raising without addressing issues of share reconstruction and valuation. Resort has 11.33 billion ordinary shares of 50 kobo each. Aso Savings has the second sectoral outstanding shares of 8.68 billion shares, nominally valued at N4.34 billion. Union Homes has 7.81 billion outstanding shares while Abbey Building Society has the least outstanding shares issue of 4.2 billion shares.

    Undoubtedly, the mortgage industry has a robust outlook. With estimated housing deficit of about 17 million and growing demand for private and commercial developments, mortgage bankers have latent untapped opportunity in Nigeria’s large population and wide gap in shelter. But the challenges for the mortgage bankers are appropriate products and investment strategies that could unlock these opportunities. Before then, they need to convince investors they have found the winning formulas.

     

  • CBN won’t relax control of MfBs, mortgage firms, others

    The Central Bank of Nigeria(CBN) will continue to monitor Development Finance Institutions (DFIs) for growth this year.

    In a report on activities of Other Financial Institution Department (OFID) on its website, it said the aim of monitoring CBN primary mortgage banks, finance houses, microfinance banks, among others, grouped under DFIs is to see whether they are in order.

    CBN said: “The aim of monitoring DFIs is to institutionalise strong corporate governance and risk management programmes in those firms. The exercise will enable the companies to effectively deliver on their mandates. The bank shall also continue to enforce the Uniform Prudential and Assessment Standards prescribed for DFIs in Africa, developed under the aegis of the Association of African Development Finance Institutions (AADFI) for benchmarking operations of the DFIs.

    “All Other Financial Institutions (OFIs) are required to strictly comply with the prudential requirements specified in the existing guidelines/circulars, directives and provisions of BOFIA CAP B3 Laws of the Federation of Nigeria, 2004. Appropriate sanctions shall be imposed on any OFI found in contravention of the prudential guidelines, circulars, directives or provisions of the BOFIA, 2004.”

    The CBN also said it would sustain the implementation of the Microfinance Certification Programme for Microfinance Banks (MfBs). It added that it would continue to license microfinance banks in line with the prescribed new capital regime of N20 million, N100 million and N2 billion for unit, state and national microfinance banks.

    The apex bank said it is introducing specialised second-tier institutions that would provide short-term liquidity, long-term funding or guarantees to mortgage banks and housing finance providers.

    According to CBN, reforms of the primary mortgage banks shall, among other things, target the enhancement of access to mortgage/housing finance, introduction of sound risk management, strong corporate governance and the promotion of secondary mortgage market.

     

  • Uniform standards for mortgage banks

    The Central Bank of Nigeria has given next year as the target date to wind down the consolidation and reforms of the mortgage sector.

    The apex bank promised to implement a Uniform Mortgage Underwriting Standard in the mortgage sector, Executive Secretary, Mortgage Banking Association of Nigeria (MBAN), Kayode Omotoso, has said.

    Omotoso told The Nation at the Second Housing Finance & Investment Conference and Exhibition in Lagos that the focus of the group is to remove the Land Use Act from the constitution and allow for the development of a robust secondary mortgage market, as well as increase long –term funds for housing delivery with the Federal Mortgage Bank of Nigeria (FMBN) with MBAN as arrow -heads.

    He urged governments at all levels to make provision for housing grants, subsidies and subventions in their budgets to provide low rate mortgages for social housing to the public sector and lower class for affordable housing.

    He called on the Central Bank of Nigeria (CBN) to introduce a mortgage default insurance scheme for the sector, while urging stakeholders to cooperation with local and foreign partners towards effective consumer credit literacy with emphasis on the sector products and services.