Although the mortgage industry is being enhanced, but industry players are still concerned about the non-adoption of model mortgage and foreclosure law by majority of the states, a development that has affected operations in the built sector.
The situation according experts is hindering effective housing delivering and the ability of mortgage banks to lend funds to developers as well as recoup such investments.
Foreclosure is a process in which banks, mortgage institutions and lenders use in a bid to recover their money from debtors that have failed or are unable to meet up with the terms governing their loans. It’s a legal mechanism, which allows the lender to take possession and sell the secured property, pay off the loan in the event that the borrower defaults on the loan or otherwise fails to abide by its terms.
One of the core functions of banks and financial institutions is to make funds available for specific purposes, earn interest on the money by recouping their capital, and sustain the cycle profitably.
Mortgage plays an important role in homeownership. But in Nigeria, the process as well as the interest rate impedes the growth of the industry, which is said to currently contribute only about 0.5 per cent to the country’s Gross Domestic Product, (GDP).
Some of the merits of the Model Mortgage and foreclosure Law include, creating an enabling environment for states to provide affordable housing for their citizens by de-risking the housing and mortgage sector and unlocking its potential for economic growth.
According to experts, it will also serves as an enabler for ease of doing business index as the states will improve and this will in turn further improve the business case for new investments in housing and catalyse access to finance for citizens of the states.
This, it was gathered would further increase taxable income to the states as well as enhance the internally generated revenue profile. The law will also make provision for the establishment of mortgage board and mortgage registry; reduce the time stretch it takes to issue Certificates of Occupancy by delegating top government officials to sign the governor’s consent rather than the governor alone; and make land ownership transfer easy, among other benefits.
As of August 2018, only eight states that include, Edo which has established a mortgage board, Akwa-Ibom, Cross River, Kogi, Benue, Plateau; Kebbi; and Gombe have so far make move to adopt a model mortgage and foreclosure law in their domains.
Investigations show that Ogun State is awaiting the governor’s sign-off to adopt the law while four other states are also making moves towards adopting the law. Lagos and Kaduna states have enacted their own mortgage model law, and have worked on their property rights and land digitisation.
For banks to consider a security for a loan as acceptable, they normally carry out some due diligence. In the case of real estate, they have to ensure that the property belongs to the person or corporate body that claims to own it.
Essentially, the preferred document, in this case, is a certificate of occupancy or other acceptable registered titles.
The reason for this is that these documents are easy to verify and are also easy to transfer to third parties.
A property with a good title also has a better and higher market valuation than the property that lacks it.
The Guardian’s investigation revealed that majority of the states’ ministries of housing headed by their commissioners, however, are not aware of the essentiality of having the law in place.
Efforts to get reactions on government plans from states like Rivers, Ekiti, and Ondo among others on moves to passed the law, was unsuccessful as some of the helmsmen show ignorance about it.
Speaking recently at a shareholder meeting in Lagos, the Chief Executive Officer of a Mortgage bank, Adeniyi Akinlusi, lamented that failure by the National Assembly to pass the foreclosure law has contributed to unprecedented housing deficit in the country.
He stressed that the non-existence of an effective foreclosure mechanism in Nigeria constitutes a disincentive to housing investors.
According to him, the National Assembly must expedite action on the passage of the law affecting the legal and regulatory framework of the Mortgage sector; especially related to foreclosure to motivate the mortgage bank to increase their loan portfolios.
“The foreclosure law needed to be passed by the state and National Assembly so that we can have more people owing their own home. Until we have a lot of Nigerians own their homes, it will be difficult to address the issue of economic disempowerment because when you own your home, you can be empowered to attract capital from the banking system.”
He emphasised the need for each state to come up with an effective law that will make foreclosure easy in the state to attract the needed funding and capital from the mortgage bank.
‘The major challenge is the issue of foreclosure. There is no effective foreclosure mechanism put in place, if you go to court, it would take donkey years. And at such, if mortgage banks find out that people who default are not paying their loans they can not sell their houses, they are not motivated to increase their loan portfolio or give more people loans because the ones you have, you are having more problems with it. Each state can simplify the law by coming up with an effective law that will make foreclosure easy in the state.
“Once you have a state that pass this, it would attract funding and capital from the mortgage bank because you can use it as an example. There are one or two states that have passed it and we are engaging with some other states so that once you have good examples in this regard, more funding will go to people in those states and they can own their houses”.
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