Tuesday, October 10th 2017 marked a remarkable milestone in the history of mortgage finance in Nigeria with the launch of the Mortgage Warehouse Funding Limited (MWFL); a Special Purpose Company set up with the sole objective of providing short-term local currency, competitively-priced funding to Mortgage Banks in a bid to enhance their mortgage origination capacity.
The Asset Backed Commercial Paper Conduit was incorporated in December 2014, and is initially sponsored by a group of 8 Member Mortgage Banks (MMBs); as mobilised by Mortgage Bankers Association of Nigeria (MBAN), as well as certain other carefully selected parties each of which bring a critical element to the success of the Company including: the Nigeria Mortgage Refinancing Company Plc. (NMRC) as Liquidity & Off-Take provider, CitiHomes Finance Company Limited (“CitiHomes”); a CBN-licensed financial institution as Program Manager, Lion’s Head Global Partners, London through its African Local Currency Bond Fund; as the Initial Subordinated Commercial Paper Subscribers, and Dunn Loren Merrifield Advisory Partners as Financial Adviser and Arranger.
The activities of MWFL are aimed to complement those of NMRC in that whilst NMRC is licensed to provide long term matching funding and liquidity to the mortgage sector via secondary market refinancing from the bond market, MWFL will serve to provide short term/interim funding for mortgage origination financing to the Mortgage Banks. MWFL will provide this short-term financing, through the issuance of high-quality investment grade rated Senior and Subordinated Commercial Paper Notes under an initial N20Billion Naira Program currently undergoing registration at FMDQ OTC. The proceeds of which will be used to fund a percentage of its Member Mortgage Banks’ pipeline of pre-qualified NMRC conforming mortgage loans.
The MMBs may then from time to time apply for short-term funding from MWFL under the terms of a lending agreement executed between each MMB and MWFL to fund booked mortgages at origination closing. These mortgages are then allowed to season on the balance sheet of the mortgage bank for a minimum period of 6 months before they become eligible for refinancing by NMRC in accordance with the NMRC’s Master Purchase Refinancing and Servicing Agreement.
In attaining its primary objective of providing liquidity to its Member Mortgage Banks to originate NMRC conforming mortgages, a signing ceremony held on Thursday 28th September 2017 where the parties executed all necessary agreements. The highlight of the signing ceremony was the execution of the Liquidity Asset Purchase Agreement between NMRC and MWFL under which NMRC undertakes to refinance NMRC UUS conforming mortgages pre-financed by MWFL.
Introducing Mortgage Warehouse Funding Limited during the launch event in Abuja, Director OFISD at Central Bank of Nigeria Mrs. Tokunbo Martins commended that “Mortgage Warehouse Funding Limited is a welcome idea. It is expected to address the drought of funds available for mortgage origination.
In addition, Head Nigeria Housing Finance Program, CBN, Mr. Adedeji Adesemoye said “the introduction of MWFL into the mortgage eco-system is a laudable development that will help both the mortgage banks and the construction industry”.
According to Mr. Niyi Akinlusi, President MBAN and Director on the Boards of both NMRC and MWFL, “Mortgage Warehouse Funding Limited is expected to significantly increase the fire-power available to mortgage banks for their daily operations”.
With the successful completion of this landmark issue, MWFL will connect the Nigerian mortgage market currently plagued with low deposits level and high cost of alternative sources of funds, to the money market by efficiently inter-mediating short-term funds from the money markets towards the provision of housing finance in Nigeria.
Global Credit Rating Company, an internationally recognised and fully accredited rating agency accorded the indicative ratings of ‘A1(NG)(sf)’ to the Senior Notes of the ABCP, and an ‘A1-(NG)(sf)’ to the Subordinated Notes of the ABCP both with positive outlooks. The ratings underscore the confidence reposed on the credit enhancement of the Transaction.
With its very high investment grade ratings, affirming the underlying credit strength of the CPs, MWFL Papers are expected to be competitively priced at relatively tight spreads above comparable treasury bills, introducing a new asset class that will diversify the portfolio of money market investors.
In a statement confirming the synergy of member stakeholders in MWFL, the Chairman Mortgage Warehouse Funding Limited (“MWFL”), Mr. Sonnie Ayere, said “the launch of this conduit will see us begin to de-risk construction finance as MWFL becomes the funding source of the off-take often required by commercial banks to fund developers”.
Dunn Loren Merrifield Advisory Partners is the Transaction Structure Adviser and Sole Arranger. The company is a member of the Dunn Loren Merrifield Group, a full-service investment house with its headquarters in Lagos and is generally seen as an intermediary that links key sectors of the Nigerian economy such as Micro finance, SMEs and housing to the capital markets.