Bridging Nigeria’s huge housing deficit requires a multi-faceted approach by all the players in the housing industry,
In the face of these challenges and given that housing and mortgage finance is a key component, it has become imperative to restructure mortgage refinancing to drive the needed reforms and strategies that will expand the availability of social and affordable mortgage and housing services to Nigerians.
Industry experts and practitioners believe that a new chapter in the annals of the country’s mortgage and housing sector was created when the Nigerian Mortgage Refinancing Company (NMRC) was unveiled in 2013 under the Nigeria Housing Finance Programme.
The establishment of the NMRC is the first time a co-owned institution is operating with a public-private governance structure.
As a private sector-led mortgage refinance institution, the project represents the first effective collaboration in the financial sector between the public sector – the States, the Ministries of Land, Justice, and Finance, the regulators, CBN, SEC, and the private sector – with financial institutions, being at centre of housing development and mortgage growth.
The basis for a mortgage refinance company, as a secondary market institution is to provide long term funds to mortgage lenders, and act as a mortgage liquidity facility. Ideally, a liquidity facility would be a stand-alone institution with its long-term operational future in the private sector.
Preferably, and in line with global prudential standards such liquidity facilities have financial institutions investors separate from the end users of the liquidity service for refinancing their mortgage backed assets.
Again the Nigerian experiment bucks this trend as the investors are also the customers of the institution (a clear case of conflict of interest should be resolved urgently).
Mortgage liquidity facilities fulfill a dual role of providing direct funding, by buying mortgages (often with recourse), or lending on the basis of mortgages being assigned.
The second role is to provide a liquidity backstop to lenders. This facilitates a much greater level of maturity transformation and enables lenders to better leverage their deposit base for on-lending as mortgage loans. NMRC must be differentiated from an Asset Management Company, beyond increasing shareholders return, its primary aim must be mortgage refinancing. This approach should be in line with its core mandate of promoting affordable home ownership in the country.
NMRC must be focused and avoid distractions that can negatively impact government programmes in the housing sector. The institution must continue to drive laudable initiatives to deepen the market.
The NMRC from its charter, mission and vision is fundamentally expected to be built around development financing, and high-level macro-economic impact investing, as against operating like an asset management company. It must be able to provide long-term liquidity to financial institutions extending mortgages in Nigeria as well as invest equity into long-term initiatives that also provides social return on equity and not only commercial rate financial returns. Its model is expected to provide the capital market with a transparent and effective way of funding developmental and impact-driven initiatives while mitigating the long-term and short-term liquidity risk of investing in the mortgage and housing market.
As an institution with ample public sector support (backed by Government guarantee, Ministry of Finance and Sovereign Wealth Fund Investments), the Federal Government other Stakeholders must ensure it makes it mandatory for NMRC to become fully responsible to the goals and aspirations of all stakeholders particularly the public and not just the equity investors and investment partners.
NMRC by acting as a central refinancing platform, should be able to act as a force for standardization in the market. NMRC has made attempts to set the criteria for the types of loans it will refinance, including standardised documentation, risk characteristics, etc. Standardizing market practices allows for greater transparency and the creation of market information systems. It is important to note that the maturity of any loan that is structured with collateral in the form of a mortgage can be refinanced and should be refinanced to drive down the cost of financing generally.
This would be a particularly useful function for many Nigerian banks that are not capital constrained and are also relatively liquid, but just lack long-term funds to carry out mortgage creation and Housing development. Ideally, the liquidity facility would fund itself by issuing standard bonds of various tenors, depending on transactions and market conditions.
If it is structured to drive market growth and impact, NMRC as a liquidity facility will function as an intermediate step on the path to a full secondary mortgage market and as an essential tool for delivering policy objectives such as the promotion of affordable housing or the promotion of local currency lending to the housing and mortgage sectors, spearheading legal and other structures required for mortgage lending as part of its investment in the financial services sector.
The opportunity presented in a re-structured mortgage refinance market can be exploited if all Government agencies (State and Federal) and Private Sector (Financial Institutions and Construction Companies, etc.) act responsibly. What this means, for example, is that: all households wishing to either, develop their existing home, or acquire a home of their own, must be granted access to credit and other opportunities to homeownership without any doubt, this must be as natural as the right to a passport.
Land registries with the support and collaboration of NMRC and other stakeholders in the States must provide access to title rights at a low cost and within a few months rather than the current practice of waiting for years. Construction companies, artisans, suppliers of building materials, have to start building homes of real value and not of speculative value. This means that the quality and cost of homes should be easy to assess without huge costs to the borrower. In the rare cases of default, the financial and mortgage institutions must be able to repossess, fairly and quickly. For this to be possible, the legal justice system for mortgages must be developed to work professionally.
Furthermore, NMRC would help reinvigorate the housing and construction sector, help increase liquidity in the housing sector, provide secondary market for mortgages and increase the number of people able to purchase or build homes at an affordable price in the country.
The company should also help to create more than 200, 000 mortgages in at affordable interest rates within the shortest possible timeframe in partnership with the Federal Mortgage Bank and other institutions. The NMRC as a systems enabler is supposed to help promote the developmental aspirations of the Federal Mortgage Bank and also assist the FMBN to standardize its operations.
The NMRC using its position as developmental and impact institution should be able to encourage financial institutions in the country to offer mortgages and be willing to refinance loans tied to construction, residential land purchase and housing development and not just create temporary overdraft loans.
NMRC must engage and encourage financial sector regulators and authorities to bring down interest rates to a single-digit level, to enable low income earners access mortgage and Housing development loans. Also, individuals and organisations should be encouraged to come together to form housing cooperatives, as part of efforts to boost housing delivery with support and guidance from NMRC. A thorough reform of the mortgage refinance sector must be speedily carried out to specifically address challenges in delivering affordable housing in the country.
The Nigeria Mortgage Refinance Company has refinanced mortgage loans totaling N18bn as at December 2018. The company confirmed the amount in a statement issued in Abuja. NMRC is a Central Bank of Nigeria licensed mortgage liquidity facility with the core mandate of developing the primary and secondary mortgage markets by raising long-term funds from the capital market, thereby promoting affordable home ownership in Nigeria. NMRC was incorporated on 24th June 2013 and obtained its final license to operate as a non-deposit taking financial institution from the CBN on 18th February 2015.
The statement said that the refinancing of the N18bn housing loan was in line with the company’s mandate to promote affordable home ownership in the country.
This, it added is being achieved by leveraging funding from the capital market to deepen liquidity in the primary and secondary mortgage markets.
It said the company refinances mortgage loan portfolios of its member primary mortgage lending and commercial banks that comply with its uniform underwriting standards. The statement said the deployment of the N18bn to refinance mortgage loan portfolios of member lending institutions has helped to boost liquidity in the Nigerian housing market, thus enabling mortgage lenders to provide more housing loans and encouraging long-term mortgage loan creation.
The Managing Director/Chief Executive Officer of NMRC, Mr. Kehinde Ogundimu in the statement said that the company is working hard to further boost its refinancing operations.
Source: Festus Adebayo