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What mortgage can do in a struggling economy

When there are downsides in an economy such as Nigeria is passing through at the moment, everything and everybody is affected. Besides weakening the economy, economic downturn also weakens purchasing power of individuals and households.

The challenge of life and living in Nigeria is that the managers of the country’s economy don’t seem to have any clue to how to bring about a turnaround. The country appears to be mired in economic inertia.

This means that the hard times are not as much the challenge of everybody as they are the concern about what to do to bring about a turnaround. Of the multi-pronged approach so far adopted to get the economy on its feet again, mortgage, unfortunately, is not in consideration.

 In advanced economies, the mortgage industry makes significant contribution to economic development. But here, it is not the case because mortgage finance as a percentage of Gross Domestic Product (GDP), till date, is still as low as 0.5 percent which is several steps behind other economies including Mexico, Malaysia and South Africa where mortgage contributions to GDP are as high as 10 percent, 25 percent and 29 percent respectively.

Given what the government was able to able to do with mortgage in British economy, it means that mortgage has all the potential to stimulate the economy. But there are obstacles to the growth of the industry which have to be tackled.

 The relative ‘newness’ of the sector; lack of understanding of the dynamics and operational models of the sector by many Nigerians, and poor appreciation of the need and the ultimate benefit of keeping money in a mortgage bank are some of the militating factors.

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Government can benefit a lot from a flourishing mortgage banking sector as it will help in regulating the economy in the desired direction.

 The Federal Government says is diversifying the economy to solve current challenges, but attention doesn’t seem to be paid to the mortgage sector. If government really wants to stimulate the economy, it has to reduce the interest rate and, all things being equal, more people will embrace mortgage loan to buy houses, leading to increased activities in the construction sector.

 Because of the identified obstacles, many primary mortgage banks (PMBs) are going through very difficult times, such that some are still unable to meet up with the kind of capital requirements in this sector.

 If government pays a closer attention to the PMBs by removing some of the obstacles that they have such as the drawbacks of the Land Use Act of 1978 which vests land ownership in the hands of the state governors; the right to easily foreclose on delinquent borrowers, ease of creating a legal mortgage and perfecting titles and the ease of falling back on their collateral to recover bad loan etc, this sector will surely improve tremendously.

Until all these issues are resolved in a way that encourages the provider of capital, in this case, the mortgage bank, the sector will not grow as desired but when these obstacles are removed, the supplier of mortgage will allocate more funds towards the provision of home loans while home buyers will better appreciate the implication of prompt interest and capital repayments as well as ensure discipline on the part of the people.

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 Okika Ekwem, a US-based realtor, says  the poor capital base of the PMBs is inadequate, dismissing the idea of a fixed capital base for mortgage institutions. “Saying that a mortgage institution should have a fixed base of, say N10 billion, is wrong because that amount is too meager; even N100 billion is also meager given the kind of projects they are to finance. The federal government needs to come in, look at what is happening in other civilized world and copy. These days, copying is no longer an act of deception but actually something that is done even in the civilized world”, he said.

 In the civilized world, according to him, there is secondary market for real estate financing where commercial banks or individual brokerage banks lend money to people and thereafter sell the securitized certificate to the secondary market and come back again to lend to individuals.

 Mortgage sector growth is possible in Nigeria if the Federal Mortgage Bank of Nigeria (FMBN) plays the role of a regulator while the federal government, through the CBN, should empower the PMBs more.

In this case, the country needs more PMBs established. Meckson Innocent Okoro, an estate manager explains this is to discourage the concentration of these institutions only in urban centres. “When this is done, access to housing finance will be increased; the PMBs must be positioned to champion the whole issue of affordable or social housing for the low income earners in the country. Anything the country wants to do without a functional mortgage system that can guarantee homeownership for a good number of people will not succeed”, he posited.

READ MORE:  U.S. Mortgage Applications Spike 18 Percent in Late March

Source: By Chuka Uroko

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