Niyi Akinlusi is the Chief Executive Officer, Trustbond Mortgage Bank Plc. and President, Mortgage Banking Association of Nigeria. In this interview, He revealed that stakeholders are doing everything possible to open up the mortgage market
A lot of Nigerians still prefer to buy houses with cash despite everything that has been done in the mortgage industry; why is this so?
I think it is cultural. A lot of our people feel that if they cannot feel it, it does not exist. They feel the cash. But I think all we need is more education and enlightenment. That is why we encourage people to take a mortgage, which doesn’t give cash but it will encourage them to understand and appreciate the fact that all transactions cannot be cash based.
It will take some time, but as more people are incorporated in terms of financial inclusion, things will continue to change.
There have been various initiatives over the years; how effective have they been in addressing the challenges of the industry?
A lot of things have been done and are being done. The latest is the Nigerian Mortgage Guarantee Company coming up and working with the Central Bank of Nigeria, World Bank, mortgage banks in Nigeria and other stakeholders. The idea is that if you take a mortgage loan and it becomes a bad loan, the company will pay half of the loan.
This is a major initiative and I am sure that by next year, the company will begin operations and this will reduce non-performing loans for mortgage banks and even commercial banks and also incentivise mortgage banks to grow and give out more loans.
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As a major stakeholder in the Nigerian Mortgage Refinance Company, most of the issues that were raised by that company are yet to be realised, four years after. What is your view on this?
A lot is being done. One of the issues we had was titling. We must say that four years down the line, we have two states that have signed the mortgage model foreclosure law. Lagos has signed; Kaduna has also signed it. So, I must say that we may not have made the progress we expected but we are making progress.
In Kaduna today, it takes less than one week and three per cent for you to perfect your title and that is very important; it is also part of the ease of doing business. A lot of things are being done and we will get there.
The NMRC has impacted and will continue to impact because we now have growing loans. Monies given by mortgage banks through the NMRC are to improve homeownership and this will continue to impact the society.
As the president of MBAN, how do you think the mortgage market can be opened up more for investment?
There are a lot of things that need to be done; a lot is being done now and we are making progress. It has been slow but steady. One of the things that need to be done is the de-risking of the market. For any market to be opened up, you need to de-risk it. That is when funds can come in.
It is only when you de-risk that you can dimension the market and evaluate it. It is similar to a country; when there is the stability of the government, a lot of countries go for investment as opposed to war-torn countries.
Nobody wants to run the risk of losing their capital and that is possible in an unstable environment. So, we need to de-risk the mortgage market. A lot has been done and in efforts to de-risk the market, the CBN with other stakeholders such as MBAN, NMRC and the Federal Mortgage Bank of Nigeria came up about two or three years ago with underwriting standards for people who are in formal employment.
If you go to a mortgage bank, they know what the standards are and how to evaluate. But we also know that the market does not comprise of only those in formal employment. A lot of Nigerians are self-employed; a lot of people are in entertainment and so on. So, people who are self-employed that constitute a large part of the society but because of the instability in their income, they cannot get access to mortgage, they have to be captured.
In a bid to de-risk the market, the stakeholders also came up with underwriting standards for those in this category. The CBN working with other stakeholders came up with underwriting standards to capture them.
Thirdly, there are people in the country, who by virtue of their faith will not accept mortgage because of the interest. So there is also an underwriting standard for non-interest housing finance. All of these make it a lot easier to dimension and evaluate the risks in the mortgage market.
Another thing that is being done is the strengthening of existing operators in terms of operational guidelines. If mortgage banking is profitable, more people will invest money but if it is not, people will not invest.
So the CBN is strengthening the operations of mortgage banks so they can earn a commensurate return on investment, which is the only way it will be sustainable. If not, the business will not be sustainable and the operating environment will not be friendly.
And to make the environment friendlier, stakeholders also came up with what is called Mortgage Model Foreclosure Law and this law has been passed by both Lagos and Kaduna. It makes it a lot easier to perfect your title; it has also reduced the time and cost of getting these titles.
If you have these titles, it makes it easier to get a mortgage and if you owe, the foreclosure law helps to sell the property because if you are defaulting, it increases the number of non-performing loans in the system.
Also, we have the Nigerian Mortgage Guarantee Company coming up by next year and the idea is that if you owe a mortgage bank and you fail to pay, the guarantee company will pay half of it. So it helps mortgage banks to create more mortgages because someone has got their back so to say.
These are some of the things that will attract capital to the industry.
There seems to be so many initiatives created recently in the industry. Would there not be overlapping duties?
They do different things. NMRC will fund the mortgage. Long-term funds are important when it comes to a mortgage. In other countries where you have advanced mortgage industries, you have long-term mortgage loans of 20 to 25 years. These are funded from the capital market where long-term funds are issued. That is the problem the NMRC is trying to solve; it issues bonds in the capital market for 10 to 15 years and uses these to refinance mortgage banks.
If a mortgage bank gives you a loan, for instance, the NMRC will refinance that mortgage after six months to enable them to continue giving mortgages. But NMRC will only give the money after the mortgage has been created.
The Mortgage Warehouse Funding Limited is there to provide short-term local currency and competitively-priced funding to mortgage banks in a bid to enhance their mortgage origination.
Most people do not have mortgage bank accounts and therefore it is difficult for mortgage banks to sort out mortgage funds. In commercial banks, people always deposit money so it is easy to get funds but mortgage banks do not have that kind of privilege to provide short-term funding to investors.
So, the MWFL goes to the market, raises money and gives to the mortgage banks to create mortgages, which will work for about six months before the NMRC will do a refinancing
When it is becoming a bad loan, the guarantee company then comes in.
How effective have all these been?
NMRC has been operating for three years and has been working. The only thing is we have a high deficit. MWFL and the guarantee company will start from 2019.
What is the current volume of annual mortgage origination since these initiatives began?
It will be better to evaluate that when the MWFL and NMGC have started operations. These are things that will encourage people to take more mortgages.
There appears to be low awareness about how mortgages work here in the country. What are stakeholders doing about this?
Yes, there is low awareness but there are also efforts to improve on that. There is a CBN programme called My Own Home. The World Bank and MBAN are also involved to educate people on what to do. Culturally, people don’t want to borrow money because it may mean they are not content with what they have.
There are a lot of engagements and more will be done; not only in English but in local languages to get people to know more about mortgage .
A lot of people have lost trust in the system because of past experiences. Is anything being done to gain back trust?
Yes, this is why we are talking about engaging people to let them know what is going on. For instance, at the FMBN, for you to get a mortgage, you must have a contribution but people may not have savings but they want to take a mortgage. So the FMBN has made it such that if you need N5m, you don’t put down payment but above N5m it is 10 per cent equity. This is part of making money accessible.
Part of what we are saying is that you can also have access to your Retired Savings Account; you can access part of it and get your mortgage. So, a lot of things are being done; awareness is work in progress. It can never be too much. People need to know about the system and have faith in it.
The informal sector, for instance, is a big market and they can take loans. There is now instalment loan for housing; there is provision for housing microfinance too. Stakeholders are trying to make the market demand-led not supply-led; people can’t just be building houses and hope people will buy. But if it is based on the amount you can afford, people will buy.
The government is also trying to recapitalise the FMBN to strengthen the system.
Interest on mortgage also seems to be a big issue, is anything being done about it?
There are a lot of initiatives to reduce it. It is a major issue and efforts are being made to bring it down. There are a lot of things going on behind the curtain which will be made public soon.
Now we are tackling the issue of access to long-term funds and down payment and others. We are also tackling the issue of titling; the other one to follow will be the issue of interest rate.
Is there a particular rate stakeholders are pushing for?
We cannot talk about the figure for now because it is determined by a lot of things such as inflation. There is nothing like a targeted rate. The only thing is to make it affordable. If it is not a single digit like that of the FMBN, then it should be lower double-digit.