This is following CBN’s exposure draft on the regulation for the operation of MGC in Nigeria which was published on the apex bank’s website on October 20th directed to banks, federal mortgage banks, Nigeria mortgage refinancing company and mortgage banking association of Nigeria.
The industry stakeholders said the initiative is a game changer and it is good for the market.
Adeniyi Akinlusi, President of Mortgage Banking Association of Nigeria and also Chief Executive, TrustBond Mortgage Bank said “we have been working with CBN and we know that MGCs is good for the industry. The initiative will help reduce the housing deficit, ownership deficit as Nigerians will have more access to mortgage.”
“Putting a guarantor in place will enable an average Nigerian to access mortgage, and this is going to go a long way in making home ownership in the country easier,” a property analyst who pleaded anonymity told BusinessDay on phone.
Nigeria’s apex bank disclosed in the exposure draft that it is with effort to promote a mortgage financing and advance home ownership in the country that it has proposed the introduction of MGCs in Nigeria.
“MGCs are designed to deepen the mortgage market through increased access to mortgage finance and enhancing credit risk with mortgage lending institutions. This is furtherance of the CBN’s Objective of promoting affordable financing and a safe and sound financial system,” CBN explained.
Meanwhile, a Mortgage Guarantee Company is a financial institution established to provide guarantees or partial guarantees to lenders against losses resulting from borrower’s defaults on residential mortgage loan.
On how the proposed MGCs will help bridge the about 22 million units housing deficit in a country that has the highest population in the African continent.
Akinlusi explained that MGCs will help deepen the market because the volume of mortgage transactions will increase owing to the guarantees on mortgages.
“This means that mortgage banks will be encouraged to give out more loans knowing that there is now guarantee on them,” he said.
Another industry experts who asked not to be quoted because of the position he occupies said the MGCs will help bridge the housing challenges in the country, although to some extent.
“This initiative will help reduce capital requirement for any mortgage by about 50 percent. This means less capital can be used, when a guaranteed loans is issued,” the analyst said anonymously.
Meanwhile, Nigeria government had in time past introduced a number of laudable reforms to enable mortgage lending institutions achieve their core mandate of creating mortgages to improve home ownership. These reforms are aimed at addressing capital and governance requirements as well as restricting their activities to concentrate on mortgage and project financing.
However, the subsectors have been plagued with paucity of long terms funds, foreclosure difficulties, inability to meet existing underwriting standards, to concentration of risk on the mortgage lender.
Nigeria’s current mortgage to GDP ratio is estimated at 0.6 percent, as opposed to 2 percent in Ghana, 31 percent in South Africa, 32 percent in Malaysia, 77 percent in the United States and about 80 percent in the United Kingdom.
Also, the 2018 second quarter figures reported by the National Bureau of Statistics (NBS) shows that the real estate sector reported Gross Domestic Product (GDP) growth of -3.88 percent compared to the -9.40 percent rate recorded in the previous quarter, in what is the 10th consecutive quarter in contraction since the first quarter of 2016.
“The concept of MGC is therefore designed to further deepen the mortgage market through access to mortgage finance and sharing of credit risk with mortgage lending institutions. MGCs guarantee will reduce or replace equity contribution that would otherwise disqualify mortgagors from accessing mortgages as required by the uniform underwriting standards,” the exposure draft reads.
The objectives of the MGCs as stated in the draft shall be to support mortgage originators such as Primary Mortgage Banks (PMBs) and commercial banks to increase mortgage lending by guaranteeing or partial guaranteeing against losses resulting from borrower defaults on their residential mortgages or on their mortgages loan portfolio.
“As a financial institution, the MGC would be under the regulatory and supervisory purview of the central bank of Nigeria,” CBN cited.
The guarantee company as disclosed by Nigeria’s apex bank can carry out the following permissible activities; full or partial guaranteeing or residential mortgages loans; invest in government securities, assume ownership of residential property in the event that a lender is unable to dispose of foreclosed property. Provided that such holding shall not exceed 20 percent of its shareholders’ fund unimpaired by losses without the Bank’s prior written approval.
But it is however not permitted to carry out among other things the following; acceptance of demand, savings and time deposits, or type of deposits; Grant consumer, commercial or mortgage loans; originate primary loans; estate agency or facilitate management; project management relating to real estate development , foreign exchange; and commodity and equity trading.
Dolapo Omidire, Founder of Estate Intel, a real estate research firm, had said that “MGC is something that can help the mortgage industry, it will make mortgage which seems to be out of reach for the average Nigerians more accessible.”
Although CBN also proposed that the financial requirements which may be varied as the CBN considers necessary, consist of the following; minimum capital N6 billion. Non-refundable application fee of N100,000, Non-refundable licensing fee and change of name fee of N1 million and N50,000 respectively.
A major challenge as cited by the apex bank that has limited the growth of mortgage creation by primary mortgage banks in the country, is lack of mortgage refinancing facility to provide long term refinancing which mortgage business mots of necessity have.
“The Nigeria Housing Finance programme (NHFP) has made efforts towards overcoming this hurdle through the launch of a mortgage refinance company which mitigates the risk of asset and liability mismatch from the books of mortgage lenders,” it noted.
Source: Endurance Okafor