Nigeria Mortgage Refinance Company Plc (NMRC) has signed an agreement with the Kaduna State Government (KDSG) and FHA Mortgage Bank to create a novel Mortgage Blended Initiative aimed at mortgage creation and refinancing at single digit with an initial Mortgage Interest Blended Rate Investment of N3 Billion.
The event which took place at the Kaduna state government house on Thursday is part of ongoing drive to create an enabling environment for Affordable Housing Development and Mortgage Creation in Nigeria.
The State Governor, his Excellency Mallam Nasir El-Rufai, after signing the agreement appreciated the participating institutions for agreeing to work with KDSG in establishing the blended rate programme and stated that the State had gone further to enact the Landlord and Tenant law that encourages, empowers and protects property owners and investors, in addition to the creation of a Mortgage and Foreclosure Authority as well as the passing into law of the Mortgage and Foreclosure Law (MMFL) in Kaduna State.
According to the Senior Special Adviser and Counsellor to the State Governor Mr. Jimi Lawal, the creation of the initiative is premised on Kaduna State’s successful strides in driving institutional and policy reforms to enable investment in housing finance.
The Managing Director of NMRC, Mr Kehinde Ogundimu commended the Governor and noted in his remarks that Kaduna State is at the forefront of housing finance transformation and a model State in terms of ease of doing business and mortgage friendliness.
The creation of the blended financing initiative represents NMRC’s value preposition under the World Bank’s sponsored housing finance strategy aimed at removing barriers to housing finance and promoting the creation of an enabling environment for housing development and mortgage creation across States in Nigeria through the adoption and passage of NMRC’s proposed MMFL.
On incrementally and consistent basis, ideas keep coming in on how to improve access to housing, mortgage loan and homeownership in Nigeria keep coming into the housing sector of the economy.
But more often than not, such ideas go into sleep almost immediately after their announcement. The challenge of new ideas in this part of the world has always been how well they are harnessed or implemented to achieve set goals.
On many occasions, the federal government, through the Central Bank of Nigeria (CBN), has intervened in the housing sector with programmes, policies and initiatives that are aimed to get more Nigerians, especially the low income earners, on the property/homeownership ladder.
Besides the Family Home Fund (FHF) and the Federal Integrated Staff Housing (FISH) is the ‘new’ My Own Home scheme which is an offshoot of the Nigeria Housing Finance Programme (NHFP) set up by the Federal Government and implemented by CBN with the support of World Bank’s $300 million loan.
Part of the federal government’s plans for the housing sector is to introduce public private partnership scheme that seeks to increase access to housing finance. Pursuant to this, the CBN selected recently 34 primary mortgage banks (PMBs) and four commercial banks to facilitate access to housing finance for low-income earners in the formal and informal sectors.
These banks along with nine other micro finance banks will drive the My Own Home scheme whose main objective in line with the parent NHFP is to catalyse the growth of the housing sector through de-risking the housing finance value chain and improving access to finance. The scheme is also aimed to increase access to housing finance and housing in Nigeria and to inspire young Nigerians on the need to key into mortgage process and start owning homes.
The 34 selected PMBs and others are to benefit from a Housing Micro-finance Fund estimated at $15 million, and also from a $10million Technical Assistance Fund, with LAPO Microfinance Bank as pivot of the pilot scheme in the housing sector. Unlike the conventional mortgage, My Own Home allows beneficiaries to use the loan for purchase of land, incremental building or renovation.
The scheme has broad-based stakeholders and partnerships that include the Federal Government of Nigeria, Federal Ministry of Finance, Central Bank of Nigeria, World Bank, Federal Ministry of Power, Works & Housing, Federal Ministry of Justice and Mortgage Banking Association of Nigeria (MBAN).Others are mortgage originating institutions such as Mortgage Lending Banks (MLBs) that are participating in the scheme through equity investment in Nigeria Mortgage Refinance Company (NMRC).
There is need now, more than ever before, for strengthening the housing sector by setting up sustainable framework by mortgage originators such as financial institutions to access long-term refinancing and NHFP is expected to create the enabling environment for that. It is also expected to scale-up mortgage and housing finance awareness through mortgage literacy, customers’ right, responsibilities and education.
These were some of the hopes and expectations raised by this scheme that seem to be fleeting away because of non-implementation that people can see and feel. Like many other schemes before and even after it, it is an occasion for endless wait.
Adeniyi Akinlusi, the MBAN President, said after the launch of the scheme that it would revamp the housing finance sector and also make access to housing finance a lot easier. He added that NMRC would be providing long-term refinancing of mortgages and standardising mortgage procedures.
According to him, most initiatives that are solely funded and run by the government as social housing programmes are usually not successful and sustainable. “My own Home, being a PPP, is likely to succeed going by our experience with other PPP programmes such as NMRC, infrastructure provision and even the pension scheme reform, which also have private sector stakeholders.”
The beauty of this scheme is that it offers mortgage guarantee that allows borrowers with insufficient or no equity contribution to access mortgage for home ownership. Besides, it will increase lending to low-income earners in the formal and informal sectors through microfinance banks for incremental housing construction or housing improvement.
The scheme has its challenges but Akinlusi reasons that, despite the challenges, public awareness is gradually being created, although there is no available statistics on the extent of coverage yet, adding that more would still need to be done in this direction..
Government believes that this scheme has the interest of every Nigerian, but being a ‘new’ initiative, there is still no statistics to quantify the response of Nigerians to it. It still needs some time to take firm root and have imprint on the minds of the public.
The major challenges of initiatives like this are funding and sustainability which, in the opinion of the MBAN president, will depend on the NHFP and how it will be able to synchronise the scheme to generate public interest that would make it run on “auto-pilot.”
Expectation is that this product will provide a platform for potential mortgage clients who do not have the required equity contribution, that is, initial deposit of 20 percent of the value of a property, for a mortgage but have the capacity to make the regular payments, to access a mortgage on the basis of a third party guarantee.
The good news then is that homeowners with insufficient or no-equity contribution can approach their lenders for a mortgage guarantee and the mortgage guarantee firm will insure only the equity contribution required so that the lender can advance the full value of the mortgage loan for the property.
Fears, however, remain that the country’s unfriendly investment climate, which is affecting the mortgage industry, could impact this scheme negatively. Akinlusi shares this view, listing high and volatile exchange rate, traditionally stringent operational guidelines for mortgage banks and general difficulty in doing business in Nigeria as potential risks, adding also issues of Foreclosure Law and inhibitions from the Land Use Act of 1978.
Nigeria’s very low mortgage penetration, which is less than one per cent, is affecting the operators and factors responsible for this include dearth of titled property on which mortgage could be created as mortgage creation is always hinged on the certainty of title to land; high cost of title registration/transfer, usually 15 per cent of property value, but as high as 22 per cent in some states, as well as non-automation of government process in registration and land titling.
Akinlusi noted that the difficulty in accessing National Housing Fund (NHF) by majority of Nigerians is because of inadequacy of funds to support the scheme as some key stakeholders are not making any contribution into the scheme as stipulated by the NHF Act.
He recommends inclusion of the informal sector with its distinct Uniform Mortgage Underwriting Standards and amendment of Pension Act to facilitate withdrawals from Retirement Savings Account (RSA) for down payment as equity contribution to boost inclusion; reduction in Cost of Title Registration and Transfer from 13per cent of property value, and Collateral Replacement Indemnity (CRI) to boost inclusion for up to 95per cent from 80per cent Loan to Value (LTV).
The premier mortgage squads of Nigeria Mortgage Refinancing Company, Mortgage Bankers Association of Nigeria and Federal Mortgage Bank of Nigeria came together to give a befitting send forth to one of its own, Mrs. Agnes Tokunbo Martins, Out-going Director – Other Financial Institutions Supervision Department (OFISD), Central Bank of Nigeria.
The highbrow event was held at the exquisite seaside view hall of the Civic Center, Ozumba Mbadiwe, Victoria Island and played host to industry professionals from both government and private financial institutions including agencies, mortgage, pensions and investments banking institutions.
The welcome address, given by Mr. Kehinde Ogundimu, CEO, NMRC extolled the international underwriting and accreditation standards introduced into the Mortgage industry by the Out-going Director and professional ethics she pursued in the discharge of her duties, bringing much needed restructuring to the sector.
The President, MBAN, Mr. Adeniyi Akinlusi had the privilege of reading the illustrious profile of Mrs. Martins, who has served in various sub-sectors of the Nigerian financial market for 35 years.
Eulogies and encomiums poured in for the celebrant by colleagues, friends and family members including the Chief Bank Examiner, Nigeria Deposit Insurance Corporation, Mr. Etopidiok Joshua James who spoke laudably about the collaborative achievement with the CBN to achieve breathtaking feats for the mortgage sector during her tenure as Director, OFISD.
Among the dignitaries that graced the event were the MD/CEO, First Trust Mortgage Bank, MD/CEO, Leadway Pensions, General Martins, including family members of the celebrant, Squadron Leader (rtd) Martins, and Pastor and Pastor (Mrs.) Nubi, among a host of others.
Mrs. Tokunbo Martins was presented gifts by Arc. Ahmed Dangiwa, MD/CEO, FMBN, ably represented by the Lagos Zonal Head, FMBN and other organisations represented at the event.
The event wrapped up with vote of thanks by Mr. Kayode Omotosho, Executive Secretary/CEO, Mortgage Bankers Association of Nigeria.
WASHINGTON- Sales of new U.S. single-family homes rebounded more than expected in August, the latest sign that the sluggish housing market was starting to get a lift from lower mortgage rates.
The report from the Commerce Department on Wednesday also suggested the economy continued to grow moderately. It added to solid reports on August retail sales, industrial production, housing starts and home resales in allaying financial market fears of a recession.
A year-long trade war between the United States and China has heightened risks to the longest economic expansion in history, now in its 11th year, prompting the Federal Reserve to cut interest rates for the second time last week. The U.S. central bank cut rates in July for the first time since 2008.
“This positive data caps off a month of redemption for the housing market,” said John Pataky, executive vice president at TIAA Bank in Jacksonville, Florida. “If American consumers remain in good spirits, there is no reason this positive momentum can’t continue, so long as prices remain in check and housing supply does not get critically low.”
The Commerce Department said new home sales increased 7.1% to a seasonally adjusted annual rate of 713,000 units last month, boosted by a surge in activity in the South and West. July’s sales pace was revised up to 666,000 units from the previously reported 635,000 units.
It was the second time in three months that new homes sales jumped above 700,000. Economists polled by Reuters had forecast new home sales, which account for about 11.5% of housing market sales, increasing 3.5% to a pace of 660,000 units in August.
New home sales are drawn from permits and tend to be volatile on a month-to-month basis. Sales vaulted 18.0% from a year ago. New homes sales are benefiting from a shortage of previously owned homes. The median new house price rose 2.2% to $328,400 in August from a year ago.
The housing market, the sector most sensitive to interest rates, has perked up in recent months in response to a sharp drop in mortgage rates. Reports last week showed housing starts and building permits soared to a more than 12-year high in August, and home resales rose to the highest level in 17 months.
Homebuilders confidence increased in September. The 30-year fixed mortgage rate has dropped about 120 basis points from last year’s highs to an average of 3.73%, according to data from mortgage finance agency Freddie Mac.
While other data from the Mortgage Bankers Association on Wednesday showed applications for loans to purchase a home fell last week, they were up strongly from a year ago.
The dollar rose against a baskets of currencies as investors were drawn to its safe-haven appeal after House of Representatives Speaker Nancy Pelosi on Tuesday announced that the Democrat-led House was moving forward with an official impeachment inquiry on President Donald Trump.
Stocks on Wall Street were trading higher after Trump said a trade deal with China could happen sooner than expected. U.S. Treasury prices fell.
The recent improvement in housing data has raised optimism that the housing market could be regaining its footing after hitting a soft patch last year. Residential investment has contracted for six straight quarters, the longest such stretch since the 2007-2009 recession.
The Atlanta Fed is forecasting gross domestic product rising at a 1.9% annualized rate in the third quarter. The economy grew at a 2.0% pace in the second quarter, slowing from the January-March quarter’s brisk 3.1% rate.
New home sales in the South, which accounts for the bulk of transactions, advanced 6.0% in August. Sales in the West accelerated 16.5%. But sales tumbled 5.9% in the Northeast and fell 3.0% in the Midwest. Sales last month were concentrated in the $200-749,000 price range. Homes priced below $200,000, the most sought after, accounted for only 10% of sales.
Builders have complained that land and labor shortages were making it difficult to construct more affordable houses.
“Builders remain focused on the upper end of the market,” said George Ratiu, senior economist at online listings website realtor.com. “Costs of construction remain an ongoing issue. The inventory of affordable new homes is likely to remain constrained this year.”
There were 326,000 new homes on the market last month, the fewest since September 2018 and down 1.2% from July. At August’s sales pace it would take 5.5 months to clear the supply of houses on the market, down from 5.9 months in July.
About 63% of the houses sold last month were either under construction or yet to be built.
Players in Nigerian mortgage industry are optimistic that the recent action by the Central Bank of Nigeria’s (CBN) that saw the removal of 5 percent cap on interest rates for mortgage finance will give room for rate increment.
Prior to the removal, Nigerian financial institutions were only allowed by the CBN to add 5 percent to the MPR as the threshold rate for financing mortgages.
But in a recent circular signed by Kevin Amugo, Director, financial policy and regulation department of the CBN, it was stated that the “maximum MPR + 5 percent” is no longer applicable to all financial institutions in Nigeria.
“What it means is that banks and other financial institutions can add as much as, say 20 percent, to the MPR and then dish out that as their lending rate for mortgage financing and in return Nigerians will access mortgages at a higher rate,” a Lagos-based analyst said on the condition of anonymity.
According to Abiodun Akanbi, Head of Strategy at Abuja-based Infinity Trust Mortgage Bank, in the short term, the cap removal may lead to increase in mortgage rate.
“Yes, it may have an impact on the ability of individuals to access mortgage in a short term but the policy will give the supply side the opportunity to easily access funds,” Akanbi said.
High mortgage rate is considered as one of the key culprits for Nigeria’s housing challenge. Typical mortgage in Nigeria ranges between 7-10 percent for Federal Mortgage Bank of Nigeria (FMBN) and between 15-25 percent for commercial mortgage institutions, one of the highest in the world.
This has left the industry less attractive for a country that is referred to as poverty capital of the world, where millions live on less than one dollar a day.
Africa’s most populous nation has one of the world’s lowest mortgages to Gross Domestic Product (GDP) rate at 0.6 percent. This lags Ghana’s 2 percent, South Africa’s 30 percent and crawls after the U.S and UK rates of 60 percent and 70 percent respectively.
“I think the Central Bank is trying to see if the market can regulate itself,” Roland Igbinoba, Founder, Pison Housing Company, told BusinessDay on phone.
Igbinoba added that “even before the removal of the cap, mortgage rates in the country has been high and difficult for many to access.”
Nigeria which has the highest population in Africa, has more than 17 million housing deficit and more than 90 percent of new homes that are built in the country are funded from personal savings.
“The biggest problem in the sector is the high cost of the very limited mortgage available. If they can develop policy to ease housing finance, it will be impactful,” Wole Olabanji, the CEO of CoBuildIT, a Lagos-based real estate firm, said.
However a source close to the central bank revealed to BusinessDay that the apex bank was at the final phase of commencing mortgage subsidy, with the aim to achieve a single-digit mortgage rate before the end of the year.
The source who asked not to be quoted because of the sensitive nature of the issue, explained that the recent removal of the MRP+ 5 percent cap on mortgage interest rate was in line with the regulator’s plans to achieve single-digit mortgage rate.
“The new policy is in preparation for the single digit interest rate on mortgages. The CBN has gotten to the board of governance for approval and before the year ends they would have commenced the subsidy,” the source said.
Commenting on the cap removal, Andrew S. Nevin, West Africa Financial Services Leader and Chief Economist, PWC said the CBN was obviously focused on a well-functioning real estate and mortgage market.
He added however that “Nigeria’s Dead Capital locked up in real estate will only be unlocked with reforms to the Land Use Act and more streamlined systems for developing and buying and selling real estate.”
According to data by the National Bureau of Statistics (NSB), the Nigerian property market out performed 19 sectors to post worst growth in the second quarter of 2019, contracting by 3.84 percent.
The sector exited its 12 quarters of contraction in Q1 2019 but fell back to contraction mode in Q2 on slow economic activities, decline in purchasing power and lack of liquidity in the industry.
“The real estate sector is a lagged but this is understandable. Not much progress can be made in this sector with a large portion of Nigeria’s population outside the housing market and mortgage still remains too expensive for many people to access and afford,” Adeniyi Akinlusi, CEO, Trustbond Mortgage said.
When the National Bureau of Economic Research speaks on a disputed economic issue, it’s a bit like squabbling siblings getting a ruling from a parent. NBER is widely accepted as the arbiter of economic cycles, setting the start and end dates of recessions and expansions.
Now, NBER has weighed in on one of the most chilling questions to arise in decades on the usually dry topic of monetary policy: If a U.S. president tries to influence the most powerful central bank on the planet with public name-calling and derision, can it work?
The answer, according to NBER, is yes. President Donald Trump’s Twitter attacks on the Federal Reserve and the man who leads it already have knocked a combined 10 basis points off the expected Fed funds futures contract, the equivalent to about 0.30 basis points per Tweet, NBER said.
“We provide evidence that market participants believe that the Fed will succumb to the political pressure from the President, which poses a significant threat to central bank independence,” Francesco Bianchi, Thilo Kind, and Howard Kung said in a 36-page NBER report published on Monday. Bianchi is an economist who teaches at Duke University. Kind and Kung teach at the London Business School.
This month alone, Trump’s attacks on the Fed have included describing the FOMC board and its members as “boneheads,” “losers,” “naïve,” and an “enemy” of the U.S. with “No ‘guts,’ no sense, no vision!’”
Here’s why it matters: an independent central bank is critical to a stable monetary system. If central bankers can be influenced to help the re-election prospects of a U.S. president – meaning the current president and, by extension, future presidents – it heightens the danger of inflation and other monetary ills.
Inflation causes higher mortgage rates, chilling demand for home sales which help to drive the consumer spending that accounts for about 70% of GDP as new owners buy drapes, couches, appliances, and other household needs.
Remember mortgage rates topping 18%? It happened in the not too distant past. Interest rates first broke into double-digits in 1978 and peaked in 1980 at 18.6%, as measured by Freddie Mac. It was enough to crash housing markets in key regions of the nation. Today, that same Freddie Mac data series shows the rate is under 4%.
That 1970s inflationary cycle was sparked by several factors including President Richard Nixon pressuring Federal Reserve Chairman Arthur Burns to provide him with expansive monetary policy for political purposes. Inflation rose to 12.3% in 1974, the year Nixon resigned, but it kept rearing its ugly head for years afterward, peaking in 1979 at 13.3% as businesses confused by the Fed’s contradictory moves kept prices high.
“To fight inflation, greater independence was established in the late 1970s by defining a dual mandate of price stability and maximum employment followed by the creation of an arms-length relationship that insulated the Fed from interference by the executive branch,” the NBER report said. “The enhanced autonomy for instrument setting allowed the Fed to aggressively target and stabilize inflation in the ensuing three decades.”
Trump has attacked that philosophy head-on, to the economy’s peril, the paper said.
“Establishing central bank independence was pivotal for containing inflation by curbing political incentives for expansionary monetary policy,” the paper said. “A monetary authority with greater autonomy is associated with lower and more stable inflation.”
The Central Bank of Nigeria’s (CBN) recent circular, which removed “interest rate and cap in respect of Part 2 Section 2.1.3 (Mortgage Finance)” in the Guide to Charges by Banks and Other Financial Institutions in Nigeria, should be of immense interest and concern to people who have had their hopes deferred about housing for all.
Specifically, those who intend to borrow money from financial institutions in the country to build or purchase house(s) and tenants should pay more attention to the new deal. The new policy should also be of interest to any persons currently enjoying a mortgage facility before the above referenced circular.
Prior to the latest circular which became effective September 9, 2019, interest rate on mortgage facilities in the country, was negotiable but pegged at or subject to a maximum of Monetary Policy Rate (MPR) plus 5%; meaning that lending by financial institutions in Nigeria for mortgage purposes, at a rate higher than MPR plus 5%, amounted to regulatory disobedience. That policy took effect on May 1, 2017. With its termination on September 8, 2019, it lived for about two years and four months.
It is noteworthy that, in taking the decision to remove the “interest rate and cap,” the CBN indicated it considered two issues: “Implementation challenges in respect of the maximum cap of MPR+5% placed on mortgage finance rates” and “concerns of stakeholders.” Unfortunately, the apex regulator in Nigeria’s banking and finance industry neither cited examples of the “implementation challenges” nor any of the “concerns of the stakeholders.”
Indeed, no single or group of stakeholders that had raised issues of concern was indicated. There was also no evidence that the challenges and concerns (whatever they were), were subjected to industry and other interested parties’ deliberations before CBN reached the decision to effect the change in the prevailing policy.
Beyond the fact that there may be concerns from some stakeholders about policies, it is imperative that what should guide policy changes or somersault must not be anything short of protecting national interest. That is, it must be for the good of a greater majority of the citizens.
Now, with this new change in policy, providers and users of mortgage finance products and services in the Nigerian finance industry are at liberty to negotiate and agree applicable interest rates for their mortgage transactions. In other words, the parties will determine at what interest rate they can do business.
Although the new policy regime has already taken off, it is nevertheless, important to highlight some of its major implications for the awareness and guidance of the authorities and other stakeholders such as (intending) borrowers of funds for mortgages and tenants, among others.
An important observation: The Nigerian mortgage sub-sector is still at its rudimentary stage and begging for speedy development. With this new policy, CBN has shot a poisoned arrow into the heart of mortgage finance in the country, with negative consequences.
The first implication is that interest rates at which mortgage finance can be accessed, going forward, will obviously increase and therefore, serve as a major deterrent to the development or purchase of mortgage-backed houses.
Second, interest rates on existing mortgages are at risk of being unilaterally reviewed upwards by financial institutions. The immediate and long-term implication of such situations is the likelihood that some of the mortgage loans will become non-performing, as many of the borrowers are unlikely to meet their obligations under the new rate regime. If no other thing will make this situation possible, the prevailing inclement and harsh economic and business environment in the country, should. And if the issue of non-performing mortgage facilities become prevalent in the sub sector, the risk of distress or even failure of some of the lending institutions will serve no one any benefit. In fact, it will be at the detriment of the economy in the country.
Another key issue is this: the possibility of financial institutions booking new mortgages at higher interest rate at this time that the economy is headed down-wards is quite slim. What is worse, many of our citizens who are within their working ages are unemployed and there is a lot of job instability and uncertainty in the economy. Private commercial property developers will be interested in looking at the bottom line of their businesses before commitments, in this regard.
Further, market-determined mortgage facility rates in this country skew the power of any provision for negotiation of the rates in favour of financial institutions. This will leave the borrowers with a ‘take-it or leave-it situation’, a scenario that will essentially be anti-national development, especially the drive to “housing for all,” which has always been a mirage.
The other impacts that should be expected include, increments in house rents notwithstanding the poor remuneration of the few that are employed and non-existing jobs for the unemployed; increased inability to meet basic household or family needs (such as feeding and payment of children’ school fees); increase in social problems that will arise from homelessness of, especially the youth whose parents may be relieved of their apartments as a result of default in meeting mortgage or tenancy obligations; increased rate of mental ill-health, including lunacy; and intensified level of corrupt practices in public and private services by individuals whose dreams to own houses via mortgage arrangements, have become derailed by the new policy.
It is therefore apparent that Nigerians will be great losers with full implementation of this CBN’s mortgage finance interest rate policy regime.
The development of the mortgage sub-sector will stall, if not nose-dive; the overbearing housing deficit facing the country will intensify aided by the growing number of internally displaced persons (IDPs); increased homelessness of citizens will aggravate prevailing social insecurity perhaps, beyond what is today associated with Boko Haram and kidnapping for ransom of innocent people. It is foreseeable that some of the financial institutions providing mortgages will sooner than later run into troubled waters when their non-performing mortgage portfolios rise above the regulatory threshold. And when that ensues, the CBN, the initiator of the new mortgage finance interest rate regime without boundaries and borders, will have enough to keep it busy towards ensuring recovery of huge outstanding bad debts and resolution of imminent distress or failure of institutions in the system.
All told, as the regulator’s aspiration to free the financial system in Nigeria from non-market determined and driven interest rates intensifies, it is time to give serious thought to questions as to whether a single country-wide mortgage framework will serve this complex federation of 36 states and 774 local governments more efficiently. With different housing needs and problems confronting various regions and geographical areas of the country, will what operates in one successfully be expected to also operate in the same manner in another or other areas? Granting the differing level and quantum of housing stock needed in different geographical areas across the country, are we having the mortgage system that can address the needs of all areas? If answers are in the negative, there will then be the urgent need to seek solutions that will take into account peculiarities of pre-defined areas and zones in the country. Such solutions must, of necessity, aim at the overall successful development of the mortgage sub-sector across the country. This again is another national question in the context of tinkering with the convoluted structure that holds everything down in this country.
The legislature in states of the federation where new ones were elected early this year should have settled down now for legislative business. While new members are learning the rope, old and returning members are perfecting their arts for effective legislative duties.
Expectedly and as is characteristic of Nigeria, virtually all of these legislative houses had a number of bills pending which have been inherited by the new assembly. One of such bills which the sponsors wanted passed urgently was the adoption of a model mortgage and foreclosure law by the states.
The bill was packaged as part of efforts at growing a mortgage system that would drive affordability in the mortgage sector by proposing a model mortgage and foreclosure law by key pilot states including Akwa Ibom, Anambra, Bayelsa, Delta, Edo, Enugu, Kano and Ogun states.
At the fore-front of the drive for this law is the Nigerian Mortgage Refinance Company (NMRC) which is riding on the relative success it has achieved in the past few years of its establishment and pushing for the adoption of the law by the states.
Given the importance of the law, mortgage sector stakeholders are urging the new states assembly to resume deliberations on it with a view to making their respective states adopt the law and pave the way for improved activities in the mortgage sector and, by extension, in the property market.
What NMRC is driving at, according to one its directors whose primary mortgage bank is a major shareholder in the company, is to get various states houses of assembly to pass foreclosure laws as a prelude to mortgage-backed affordable housing delivery.
This idea, when it filtered out, was good news and remains so for home seekers who may need mortgage facility because foreclosure law, upon adoption, fast-tracks the process for creating legal mortgages, ensuring timely resolution of disputes and creating an efficient foreclosure process.
According to the authorities of the mortgage refinancing company, the model mortgage and foreclosure law is in its final form for engagement with 21 pilot states committing to the implementation of an enabling environment for the development of the mortgage market.
The company hinted that it would be focusing on building capacity and completing outstanding operational activities. At various times, it has demonstrated uncommon resolve to live out its mandate with refinancing of some mortgage banks.
Mortgage operators have described this refinancing as a milestone and, according to Ben Akaneme, Imperial Mortgage Bank’s managing director, “this is an outstanding achievement in the march towards the realisation of affordable and single-digit interest rates for mortgages in Nigeria. He assured that his bank would continue to strive to achieve its mission of enabling easily accessible and affordable mortgages to Nigerians in order to ensure housing for all.
NMRC is quite conscious of the demands and obligations inherent in the Nigerian business environment as it assures that it will continue to anchor all its services on global best practices, good corporate governance and strict risk management practices.
NMRC came into the Nigerian mortgage market on a very high pedestal, promising a major shift in the interest rate regime in the market. But the authorities of the company have said that, though it is a partnership between the government and the private sector, the company operates as a private sector-led institution, relying on the market to determine interest rate on mortgage loans, meaning that the rate that applies to commercial loans also applies to its mortgage.
“The desire of NMRC, the Primary Mortgage Banks (PMBs) and the Central Bank of Nigeria (CBN) is to achieve single digit interest rate, but we are not there yet because the market does not allow single digit interest rate”, the official said, adding, “as it is today, we cannot meet the single digit interest rate until we are able to reach that point where the market allows it”.
Right now, the company is working under market conditions, hoping that, over time, as the market deepens and grows, the issue of single digit interest rate will be expected. Whatever the rate is today, the desire is to drive it down to single digit.
After all, part of its mandate at inception, is to increase liquidity in the mortgage system by raising funds from the capital, foreign and local, and using same to refinance mortgages to be originated by participating primary mortgage lenders.
To its credit, the company has visited the market twice and raised about N18 with which it has refinanced the loans presented by a few primary mortgage lenders as at the last quarter of 2018.
Fannie Mae released a forecast on Tuesday that has 30-year fixed mortgage rates falling to an average of 3.5% in the fourth quarter from 3.6% in the current period, which will boost refinancings to a three-year high.
The nation’s biggest mortgage financier said refinancings probably will reach $699 billion in 2019, a 31% jump from 2018. Fannie Mae a month ago projected the average fixed rate would be 3.7% in the fourth quarter and annual refinancing volume would be $638 billion.
“The decline in our mortgage rate forecast since last month led us to revise upward our forecasts of refinance originations in both 2019 and 2020,” Fannie Mae said in a statement. “With rates declining almost an entire percent and a half from the peak last November, fewer homeowners have mortgages at rates lower than current market levels, meaning homeowners are less likely to feel `locked-in’ to their current mortgage.”
The overall view of the economy was pessimistic, even though the U.S. trade war with China hadn’t worsened in the last month.
“Businesses enjoyed at least a temporary respite from further escalation of U.S.-China and other trade disputes, but the month brought both confusion in the U.K. regarding the government’s Brexit plan and renewed evidence that the U.S. manufacturing sector is not immune to the global manufacturing slowdown,” the forecast said. “Perhaps more ominous, the month also brought signs that the resilience of consumer spending may be starting to wear thin, with weak growth in employment and a sharp turn downward in consumer sentiment.”
Fannie Mae lowered its outlook for existing home sales, though not by much. Resales of homes probably will total 5.324 million this year, a drop of 0.3% from 2018. A month ago, the forecast projected a 0.1% decline.
New-home sales got a small upward adjustment. Builders probably will sell 666,000 single-family homes in 2019, a gain of 7.9% from last year. Last month, Fannie Mae said it was expecting 659,000 sales.
“The lack of existing home inventory is supportive of new construction. We continue to expect single-family housing starts to move modestly upward through the remainder of the year, even as builders continue to face labor and land constraints,” the forecast said.
A mortgage economy where the financial system is stable needs the role of an active insurance industry to grow and thrive. This is because insurance and mortgage complement each other.
Like action and reaction, insurance and mortgage are equal and opposite.While mortgage lending is a risk, insurance, by its function, acts as a hedge against risk. It is a cover.
To develop a healthy mortgage industry, therefore, there is need for a mortgage insurance functioning as a policy that protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies, or is otherwise unable to meet the contractual obligations of the mortgage.
This is why the new the Mortgage Guarantee programme, a new initiative by the Central Bank of Nigeria (CBN), is quite instructive. This is a kind of mortgage given to a borrower by a lender, where an identified third party will take responsibility for the loan if the borrower defaults. The programme is structured in such a way that once the borrower defaults, the third party receives a claim from the lender, pays the lender off, and assumes responsibility for the mortgage.
Besides incentivizing mortgage lenders, a quality mortgage guarantee programme is also used to provide credit loss protection to lenders in case of borrower’s default and, according to CBN officials, a robust primary mortgage market is a synergy of several components, all working together to effect affordability and access for intending buyers.
Investopedia, an encyclopedia of investment initiatives, identifies three aspects of mortgage insurance. These are private mortgage insurance (PMI), mortgage life insurance, or mortgage title insurance. What these have in common is an obligation to make the lender or property holder whole in the event of specific cases of loss. Private mortgage insurance may be called ‘lender’s mortgage insurance’ (LMI) if the premium on a PMI policy is paid by the lender and not the borrower.
For these reasons and more, an active insurance industry is needed for the growth and development of a functional mortgage industry. The mortgage industry in Nigeria is still a fledgling and fingers are frequently pointed to an insurance industry that is not as active participant as it should be.
For some reasons, in this country, in spite of everything the people have learnt, policy is still shaping the industry whereas, in advanced economies, it is the other way round—industry shapes policy because people in the industry are the ones implementing the policy every day.
The mortgage industry in United States, for instance, has been robust for decades and it is with continued activity. One is not however, saying that Nigeria should replicate what happens in the US here, because Nigeria has its own unique characteristics which must be recognized and respected.
What the mortgage players in Nigeria should do however, is to make the US system a base-line because that system represents the global standard. Adenike Fasanya-Osilaja, a mortgage and finance consultant advises that “we have to start learning that system and adapt it to meet our own unique cultural system and unique needs”.
Nigeria needs to lay a very good foundation for mortgage industry growth to ensure that what happened in America in 2006 with sub-prime mortgage crisis does not repeat itself here. The Nigerian Mortgage Refinance Company (NMRC) is a big possibility that can change and shape the mortgage system in this country and could also be an umbrella for the industry.
One of the high points of NMRC, as a secondary mortgage institution, is its long term, low rate global funds and, because the mortgage industry here is not yet buoyant, NMRC, whether it is succeeding now or not, can be a significant tool for achieving these attributes of a working mortgage industry.
Fasanya-Osilaja believes that the mortgage industry should be shaping NMRC and not NMRC shaping the industry, advising that the Central Bank of Nigeria (CBN), through the NMRC, should be listening to the voice of the industry. “Experience has proved to me that the CBN is quite ready to listen and learn. The problem here, however, is that the industry has been rather passive”, she noted.
This industry has to be standardized so that global players, from global perspectives, could view the local industry from the perspective of NMRC and mortgage banking association of Nigeria (MBAN) and see something to hold on to in their investment decisions. Despite the current challenges, the Nigerian economy could conveniently support the growth of the mortgage industry as the country is one of the fastest growing economies in the world where talent resource is amazing
The mortgage consultant advises further that Nigeria needs to understand there is time for competition and also time for association and each is as critical as the other. “The only thing that will stop this industry from growing is over-regulation by people who are not in the industry and therefore will not understand the effect of their policy on the actual market”, she said, emphasizing the urgency of an active insurance industry to drive the needed growth in the mortgage industry.
As a step forward, mortgage insurance could come with a typical ‘pay-as-you-go’ premium payment, or may be capitalized into a lump sum payment at the time the mortgage is originated. For homeowners who are required to have PMI because of the 80 percent loan-to-value ratio rule, they can request that the insurance policy be canceled once 20 percent of the principal balance has been paid off.