Need to rethink mortgage lending and borrowing in struggling economy

Many Nigerians are really poor, but have sunk deeper into poverty in the last three years as the economy struggles, making it very difficult, if not impossible, for them to afford even basic necessities of life, including housing.

High incidence of poverty in Nigeria is the reason for mortgage being unaffordable and inaccessible in the country. It is also reason for the high housing deficit in the country that has left over 80 percent of the city dwellers in rented accommodation where they spend much of the income on house rents.

So much demand is made on mortgage loan seekers that they end up not being able to afford the loan. For that reason, mortgage is inaccessible to them, and that makes it necessary for supervising authorities such as Central Bank of Nigeria (CBN) to rethink mortgage borrowing and lending.

Mortgage is an important aspect of the financial system because of its connection with housing. In other countries of the world where the mortgage system works, when people borrow and institutions give out mortgage loans, it is always for building, buying or renovating existing houses.

 

But in this part of the world, because of the many contradictions associated with it, it seems as if mortgage does not exist at all. Many Nigerians, particularly those who need it, do not believe that there is anything mortgage in the financial system, not necessarily because of its relative newness in this environment, but more because of its unaffordability and inaccessibility.

Though affordability is a relative term, it is very clear that houses in Nigeria are generally unaffordable such that when experts talk about unaffordable housing, almost always, they trace the cause to mortgage which is only available to, and affordable by those who don’t need it—the rich.

Poverty level in Nigeria is high. Its prevalence is such that it is almost synonymous with existence and so many people are so poor that those that are classed as the rich are just a small fraction of the society. Again, just a few people are on employment and within this group are so many people that are under-employed.

For this reason and more, mortgage borrowing and lending is always a big issue for both the lender and the borrower, mostly because interest rate on mortgage loan is not in any way different from the rate on commercial loans given by deposit banks.

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Mortgage lenders still anchor their loans on good jobs with fat pay, meaning that a mortgage loan seeker is expected to be somebody in a good job or private business with an assured and regular stream of income.

As against 6 percent interest rate and repayment tenor of between 25-30 years, depending on the borrower’s age, mortgage lenders charge 20-25 percent interest rate with a repayment tenor as short as 12-24 months, creating a mismatch between interest rate and purpose of borrowing.

The ever widening housing demand-supply gap easily finds explanation in commercial interest rate charged on mortgage loans which makes such loans unaffordable to home-seekers. “Though the ability of banks to provide money for mortgage has changed on account of credit challenges in the financial system, mortgage affordability or the fundamentals for lending have not changed”, says Adeniyi Akinlusi, MD/CEO, Trusbond Mortgage Bank.

“The mortgage industry does not operate in isolation of the economy. Certainly, as an integral part of the economy, it has to be affected by crisis in the economic. Nevertheless, the fundamentals for lending have not changed, which means that if somebody has a good job with a financial institution or a multinational company, and the pay package is high enough for him to afford a mortgage, the crisis in the economy has not changed that affordability”, he adds.

The past few years have seen quite a number of mortgage products aimed at enabling subscribers own their own homes, but these products are yet to help reduce existing housing gap by increasing housing stock.

An expert, who does not want to be named, explains that the mortgage products some mortgage banks offer are not the type that will make any impact on housing. “The mortgage products that we have today are commercial mortgages from which the investor wants to recover his money; it is just like someone else who has invested in any other venture. He has to recover his money because he borrows from the same place like you”, the expert notes.

Mortgage products can make impact on housing only when there is government intervention and, in other jurisdictions, there is government intervention to make mortgage affordable to everybody, no matter the income level.

In developed economies, mortgage has been used to move the economy from being import-dependent to a producing and exporting one. Akinlusi says mortgage institutions need long term loans for housing finance, insisting that when there are enough funds to lend to property developers and to home seekers, the entire economy would be stimulated.

It is expected that by the time there are enough funds in the hands of mortgage institutions for long term loans to property developers, there will be a lot of property development activities and when this happens, a lot of other activities will be generated and the economy would be better for it.

“You can imagine when there are many developments going on at various parts of the country. The long term effect would be the development of industries and factories that produce building materials such as cement, rods, roofing materials, wooden materials, etc”, Akinlusi said.

“This will ultimately impact on the wider economy and your guess is as good as mine as to what follows when people have enough capital at their disposal. Definitely, investment is the next line of thought and, depending on the prevailing business environment and government policies, people will invest in anything including taking up mortgage loans”, he assured.

Source: Chuka Uroko

Housing mortgage cannot be accessed because of low wage – Experts

Housing experts have identified low income as the major reason why public servants cannot access the housing mortgage funds aimed at addressing the housing needs of workers.

Mr Bassey Ekpeyong, the Chairman of the 2nd Nigeria Housing Finance Conference said this during the opening of the conference on Tuesday in Abuja.

The conference is organised by the Nigeria Integrated Social Housing Cooperative Society Limited (NISH) titled: “Innovative Financing of Affordable Housing”.

He said that the mortgage system had refused to lend itself to the public servants because of the low wages received by the supposed beneficiaries.

He noted that the housing sector and its delivery had been one of the most serious problems government had been facing over the years.

According to him, NISH is a private sector initiative established to assist government in addressing the enormous housing deficit bedeviling the country.

“In the 80s, government tried to accommodate its staff by building houses and give to their staff then deduct the money from their salaries but as years went by, it became obvious the model could not be sustained.

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“Then monetisation of government houses was introduced, yet it didn’t solve the problem; the Federal Integrated Staff Housing Scheme (NISH) was introduce but government akin cannot solve this problem,” he said.

Ekepyong urged participants to free their minds and be frank in proffering solutions to the housing needs and why it was not possible to access mortgage for those who needed it.

Mr Yemi Adelakun, the Managing Director, NISH said that the programme was a private sector initiative driven by passion to complement government’s effort to provide affordable housing for Nigerians on a large scale at minimal cost.

He said that the conference would X-ray the housing financing system and examine innovative ways for providing houses that would be adopted and adapted to by Nigerians.

Adelakun said that lack of access to credit facility was also the major challenge hindering off takers from owning houses, stating that housing was a basic human necessity that government must provide for its citizens.

He added that housing development must be tailored according to the needs of off takers to ensure that houses built by developers were affordable and occupied.

Mrs Folashade Yemi-Esan, the Permanent Secretary, Ministry of Petroleum Resources said that the housing needs of Nigeria was enormous and must be addressed.

She noted that the conference was a step in the right direction, adding that every civil servant and citizen must have a roof over his or her head.

The Managing Director, Federal Mortgage Bank of Nigeria (FMBN), Ahmed Dangiwa assured FISH of its support to ensure affordable houses were delivered to Nigerians.

Dangiwa, who was represented by Oladapo Fakeye, the Group Head, Strategy, FMBN, said that the bank was committed to every effort aimed at addressing the housing deficit in the country.

Source: Uzoma Okafor

Survey suggests mortgage lending is not fit for today’s lifestyles

 

The mortgage industry is failing to keep up with modern borrowers’ needs, according to a new survey which shows applications from 54% fell for ‘normal’ reasons.

This number of applicants were rejected for lifestyle choices, including being self-employed or because they were buying a converted home, the study from lender Together shows.

Others who were rejected for being a contract a contract worker or taking a dividend, or buying other types of property such as conversions or high rise flats.

Pete Ball, personal finance chief executive officer at Together believes that the situation is unacceptable and said that many mainstream lenders needed to keep pace with the demands of these types of borrowers.

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‘Some banks and building societies remained reliant on a computer automated approach, and outdated and rigid criteria when deciding mortgage applications but the world has changed,’ he pointed out.

‘People’s pay, working patterns and pensions have altered beyond all recognition from 30 or 40 years ago. Even where they live, who they chose to live with, or the type of property they want to buy is vastly different from a generation earlier. What was previously thought to be normal simply doesn’t exist anymore,’ he added.

Together’s research, which was conducted by market researchers YouGov, asked about 2,000 people about mortgage applications and the reasons why some of them had fallen out of the mortgage application process.

It builds on earlier research by the Intermediary Mortgage Lenders’ Association (IMLA) which revealed a significant proportion of the UK population fail to secure a home loan between an initial enquiry and the time they would receive a mortgage offer.

The latest survey discovered that, of those rejected, 12% were denied because of their employment type, while 3% had insufficient employment history. This could be despite potential borrowers being in a good position to repay their mortgages.

Some 10% were denied because the property they wanted to buy was considered non-standard, which could mean anything from a converted barn to a high rise apartment. Self-employed workers are also being locked out of the mortgage market by some lenders at a time when labour market data shows the population of people who are working for themselves has increased by a quarter in the past decade to 4.8million.

Those aged between 18 and 34 were worst hit overall with 66% who took part in the survey failing to get on the housing ladder because of the way they live and work nowadays, which may mean they do not meet some mainstream lenders’ criteria

Older people also seem to be missing out, the research suggests. A total of 46% of over 55s were denied home loans, some because they were too near retirement age. This could pose a growing problem in the future, as the age of the UK population rises, said Ball pointed out, with the number of people aged 65 and over in England and Wales is projected to increase by 65% to more than 16.4million in 2033.

‘People are living and working longer and have varying ideas of what their perfect home will be at different stages throughout their lives. Unfortunately, much of the mainstream mortgage market has been slow in catering for these potential borrowers, who make up a wide section of society. The market needs to continue to adapt to make sure it remains fit for purpose,’ said Andrew Montlake, of mortgage broker Coreco.

The survey also found that 18% were turned down because they had a low credit score or a lack of credit history, while for 9% it was because their deposit was too small and 16% said they were not earning enough to afford repayments on their home loan.

Some 27% of rejected applicants who did not obtain a subsequent mortgage were put off ever going through the process again, rising to 32% for over 55s. Some 10% of those who withdrew a mortgage application or enquiry the last time they were unsuccessful pulled out before receiving an offer as they found the process too complicated, and 7% said there were too many stages while 28% who were originally unsuccessful have not secured a mortgage.

Source: PropertyWire

US sues UBS over alleged crisis-era mortgage securities fraud

Swiss banking giant UBS
                                                                                           Fabrice Coffrini | AFP | Getty Images
KEY POINTS
  • UBS was accused of misleading investors about the quality of more than $41 billion of subprime and other risky mortgage loans backing 40 securities offerings in 2006 and 2007, the Department of Justice said in a complaint.
  • U.S. officials faulted UBS for having a business culture that placed a higher priority on profits than full disclosure to investors, who were deprived of crucial information about the quality of the loans underlying the securities they bought.
  • The bank — Switzerland’s largest — said it will fight the lawsuit, saying that the DOJ’s claims “are not supported by the facts or the law.”
The U.S. government on Thursday filed a civil fraud lawsuit accusing UBS Group, Switzerland’s largest bank, of defrauding investors in its sale of residential mortgage-backed securities leading up to the 2008-2009 global financial crisis.

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UBS was accused of misleading investors about the quality of more than $41 billion of subprime and other risky mortgage loans backing 40 securities offerings in 2006 and 2007, the Department of Justice said in a complaint filed with the federal court in Brooklyn.

The lawsuit came after UBS rejected a government proposal that it pay nearly $2 billion to settle, according to a person familiar with the talks who was not authorized to speak publicly about them.

While UBS was not a big originator of U.S. residential home loans, U.S. Attorney Richard Donoghue in Brooklyn said investors suffered “catastrophic losses” from the bank’s failure to fully disclose the risks of mortgage securities it helped sell.

A UBS spokesman and a Justice Department spokeswoman declined to comment on the settlement talks, but the bank said it will fight the lawsuit.

“The DOJ’s claims are not supported by the facts or the law,” it said in a statement. “UBS is confident in its legal position and has been fully prepared for some time to defend itself in court.”

U.S. officials are seeking unspecified fines against UBS under a federal law allowing it to pursue penalties up to the amounts the bank gained or others lost from alleged misconduct.

The case is one of the last addressing alleged misconduct in the pooling and sale by large banks of mortgage securities that were a major cause of the financial crisis.

Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley and Royal Bank of Scotland previously settled.

‘Lying is OK’

U.S. officials faulted UBS for having a business culture that placed a higher priority on profits than full disclosure to investors, who were deprived of crucial information about the quality of the loans underlying the securities they bought.

Thursday’s lawsuit quoted a UBS trader who in a 2006 instant message said  “our crack due diligence effort is a joke,” and a UBS mortgage employee who the same year complained to his bosses about the bank’s ethics, including that “Lying is ok.”

Like UBS, Barclays had also resisted settling prior to being sued by the Justice Department. That case ended in March with a $2 billion settlement.

UBS was among the banks hardest hit in the financial crisis, and has said it lost more than $45 billion after the U.S. housing market collapsed.

It was not immediately clear how much UBS has set aside for the U.S. case, though analysts said it might be more than half the 1.2 billion Swiss francs ($1.20 billion) it has reserved for so-called non-core legal risks.

UBS is also fighting charges by investigators in France that it helped wealthy clients avoid taxes in that country, and turned down a 1.1 billion euro ($1.25 billion) settlement offer, judicial sources have said.

Shares of UBS closed up 1.3 percent in European trading earlier on Thursday.

The U.S. lawsuit was made public after markets closed in that country.

Source: CNCB

Mortgage applications drop to 4-year low as interest rates hit 8-year high

Rising interest rates are now clearly taking their toll on potential homebuyers. Total mortgage application volume fell 4 percent last week from a week earlier and plunged 16 percent from a year ago, according to the Mortgage Bankers Association’s seasonally adjusted index.

Mortgage applications to purchase a home led the volume lower, falling 5 percent for the week to the lowest level in two years. Purchase applications were 0.2 percent lower than a year ago.

“Housing supply has been quite constrained for several years. As a result, the housing market has been out of whack, with home prices increasing at twice the rate of income growth,” said Michael Fratantoni, the MBA’s chief economist. “That was not sustainable.”

Rising interest rates are now weakening affordability further.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 5.15 percent from 5.11 percent, with points increasing to 0.51 from 0.50 (including the origination fee) for loans with 20 percent down payments. That is the highest rate since April 2010.

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“Rates increased slightly last week, as various job market indicators showed a bounce back in job gains and an acceleration in wage growth in October,” said Joel Kan, MBA’s associate vice president of economic and industry forecasts.

Mortgage applications to refinance a home loan have been falling for more than a year and fell 3 percent more last week. Volume was 33 percent lower than a year ago.

Rising interest rates have cut the number of eligible borrowers who could benefit from a refinance in half this year alone, according to new data from Black Knight.

The refinance share of mortgage activity decreased to 39.1 percent of total applications from 39.4 percent the previous week. The adjustable-rate mortgage share of activity increased to 7.8 percent of total applications.

Mortgage rates continued to move higher at the start of this week but could see volatility later Wednesday, as the financial markets digest the results of the midterm elections.

Source: Diana Olick

MGCs: CBN pegs N6bn as minimum capital at N6bn

THE Central Bank of Nigeria (CBN), has said that companies seeking licenses as Mortgage Guarantee Companies (MGCs), shall maintain a N6 billion minimum capital in addition to N100,000 non-refundable application; non-refundable licensing fee of N1 million; and N50,000 change of name fee.

The CBN’s Director, Financial Policy and Regulation Department, Kevin Amugo, who revealed this recently said the exercise is meant to deepen the mortgage market in a bid to promote affordable financing, while ensuring a safe and sound financial system. The country’s apex bank while unveiling this said, it is an exposure draft to regulate the operations of MGCs as part of efforts to promote mortgage financing and advance home ownership in the country.

According to him, “Permissible activities of MGCs include: Full or partial guaranteeing of residential mortgage loans, investing in government securities, among others, in addition to assuming ownership of residential property in the event that a lender is unable to dispose of a foreclosed property”.

“If proposal is approved, MGCs can also issue bonds and notes to fund their operation; provide technical assistance to lenders on credit and business development related activities to increase pool of development expertise; in addition to other activities as may be prescribed by the CBN from time to time. MGCs are allowed to invest in government securities, deposits with licensed banks, deposits held at the CBN; and other investment specifically allowed by the apex bank.

“They are however not allowed to take any type of deposits; grant loans, whether consumer, commercial or mortgage; or originate primary mortgages. They are also not permitted to finance real estate construction, estate agency or facilities management, project management relating to real estate development, or management of pension funds/schemes. They are also forbidden from transactions such as foreign exchange, commodity, financial derivatives (except hedging instruments), or equity trading; as well as other activity not expressly permitted by the CBN, “he said.

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Amugo noted that as part of good corporate governance practice, MGCs shall have a board comprising between seven and 11 members, with the number of non-executive members exceeding executive directors, including one independent director.

“The executive directors shall hold office for a five-year term (10 years), which may be renewed only once; while non-executives are limited to three terms of four year each (total of 12 year). An executive director who has served the maximum 10 years, may be appointed Managing Director, who shall serve two terms of five years each.

“No executive director is however allowed to transmute to non-executive director until after three years period. The CBN also proposed that an MGC cannot “declare or pay dividends out that will result in the capital adequacy ratio falling below 100 percent, “he concluded.

Source: Maduka Nweke

CBN Confirms 34 Primary Mortgage Banks

The Central Bank of Nigeria has listed only 34 firms as licensed primary mortgage banks in Nigeria.

According to the list released by the regulator on Monday, 50 per cent of the banks are operating in Lagos.

From its records as of the end of September,  the CBN said 17 of the PMBs were in Lagos; eight in Abuja; two in Akwa Ibom State; while Oyo, Delta, Ogun, Kebbi, Jigawa, Abia and Osun have one each.

In September, the CBN gave a notification to revoke the operating licences of 182 other financial institutions in the country, of which six PMBs were included.

One hundred and fifty four of the affected institutions are microfinance banks while the remaining 22 are finance companies.

The CBN said 62 of the microfinance banks had already closed shop; 74 became insolvent; 12 were terminally distressed; while six voluntarily liquidated.

The CBN listed the primary mortgage banks for revocation as Accord Savings and Loans Limited in Lagos that failed to recapitalise; and Ahocol Savings and Loans Limited in Anambra (state government-owned) that closed shop.

Other mortgage banks for revocation are Trans-Atlantic Savings and Loans Limited in Bayelsa (also state government-owned) that became insolvent; Royal Savings and Loans Limited in Delta State also closed shop; Amex Savings and Loans Limited in Lagos that failed to recapitalise; and Supreme Savings and Loans Limited in Lagos that closed shop.

The CBN disclosed that eight finance companies voluntary liquidated; 13 failed to recapitalise; while one became insolvent.

According to the apex bank, the affected institutions are from different states of the federation.

The CBN described a PMB as any company that is licensed to carry out primary mortgage banking business in Nigeria. They are permitted to engage in mortgage finance, real estate construction finance within the permitted limits, acceptance of savings and time/term deposits and acceptance of mortgage-focused demand deposits.

The PMBs also engage in financial advisory services for mortgage customers and other activities the CBN may approve from time to time.

Source: Nike Popoola.

CBN Proposes Mortgage Guarantee Companies In Nigeria

In an effort to promote mortgage financing and advance home ownership, the Central Bank of Nigeria (CBN) is proposing the introduction of Mortgage Guarantee Companies (MGCs) in Nigeria.

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MGCs are designed to deepen the mortgage market through increased access to mortgage finance and enhancing credit risk with mortgage lending institutions. This is in furtherance of the CBN’s objective of promoting affordable financing and a safe and sound financial system.

The Exposure Draft on the Regulation for the Operations of Mortgage Guarantee Companies MGCs in Nigeria is hereby issued for comments and observations.

We would be pleased to receive comments on the draft guidelines through the Director, Financial Policy and Regulation Department, Central Bank of Nigeria, Abuja

Source: Nkechi Naeche

CBN Moves to Reduce Credit Risk in Mortgage Financing


THE Central Bank of Nigeria (CBN) has announced the introduction of Mortgage Guarantee Companies (MGCs), aimed at reducing credit risk in the mortgage finance sector as well as increase access to mortgage loans.

The new firms, according to the CBN will operate with minimum capital base of N6 billion and authority to provide full or partial guarantee for residential mortgage loans.

This is contained in the exposure draft on the regulations for the operations of MGCs released through a letter to all banks, Federal Mortgage Bank of Nigeria (FMBN), Nigeria Mortgage Refinance Company (NMRC) and Mortgage Bank Association of Nigeria(MBAN). Signed by the Director, Financial Policy and Regulations Department, CBN, Kevin Amugo, the letter stated: “In an effort to promote mortgage financing and advanced home ownership, the CBN is proposing the introduction of MGCs in Nigeria”.

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According to the apex bank, the objectives of the MGCs are to support mortgage originators such as Primary Mortgage Banks (PMBs) and commercial banks to increase mortgage lending by guaranteeing against losses resulting from borrower defaults on their mortgage loan portfolios. On the scope of activities permitted for MGCs, the exposure draft stated:

“The MGC shall engage in full or partial guaranteeing of residential mortgage loans; Invest in government securities and other investments; Assume ownership of residential property in the event that a lender is unable to dispose of a fore closed property, provided that such holding shall not exceed 20 percent of its shareholders’ fund unimpaired by losses without the bank’s prior written approval; Issue bonds and notes to fund its operations; Provide technical assistance to lenders on credit and business development related activities to increase pool of development expertise and other activities as may be prescribed by the CBN from time to time”.

On the non permissible activities, exposure draft stated: “The MGC shall not engage in acceptance of demand, savings and time deposits, or any type of deposits; Grant consumer, commercial or mortgage loans; Originate primary mortgages; Finance real estate construction; Estate agency or facilities management, Project management relating to real estate development; Management of pension funds/schemes; Foreign exchange, commodity and equity trading; and any other activity not expressly permitted by the CBN”.

Source: Elizabeth Adegbesan, Vanguard

Court Dismisses Mortgage Bank’s Bid to Regain Forfeited Property

A federal High Court in Lagos has dismissed an application by Safetrust Mortgage Bank to regain its high-rise property, Safetower Estate, located in Ikate Lekki, Lagos.In an application filed before Justice Sule Hassan, the developer had urged the court to vacate its earlier order of forfeiture of Safetower to EFCC, pending the completion of investigation by the Economic and Financial Crimes Commission (EFCC).

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The bank had alleged that EFCC obtained the judgment by fraudulent facts presented to the court.But Justice Hassan, in his ruling dismissed the application of Safetrust on the ground that the applicant’s counsel, Mr. James Oyetunde, did not provide any proof to show that EFCC deceived the court to obtain the forfeiture order.

EFCC through its counsel, Mr. Nkereuwem Anana, had earlier in a deposed affidavit presented before the court stated that the property in question is a subject of grand fraud.He said the matter was under investigation by the commission and should therefore remain forfeited until investigation is completed.He reminded the court that Safetrust had fraudulently obtained funds that run into millions of naira from one Mr. Kunle Ogunmefun, which it diverted for other
purposes.

The counsel held that going by the law governing mortgage institutions, the bank is not supposed to engage in property development or energy business. Safetrust Bank was also said in the affidavit to have failed to honor an agreement the bank had on the property with Ogunmefun in July 2017.

The court also dismissed a second application filed by former Managing Director of the bank, Mr. Yinka Adeola. The property is located on a parcel of land measuring 50027, 147 square meters, and particularly described as Block 116, Plot III, Ikate Ancient City in Etiosa Local Council Area.

The EFCC investigated the disputed asset, with Survey Plan No BAS258/2013/130-1.The estate, promoted by Safetrust Mortgage Bank Limited and Macbosh Properties Limited ran into controversy, following contractual disagreements between the developers and an investor.

 

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