The Federal Government through the Central Bank of Nigeria is working on a new initiative to deepen the housing finance industry.
The concerned stakeholders are already at the concluding stages of the initiative, known as the Nigeria Mortgage Guarantee Company, expected to be inaugurated at the beginning of the second quarter.
The NMGC is the second major initiative under the CBN’s Nigerian Housing Finance Programme, a Public-Private-Partnership designed to improve access to affordable housing finance in the country.
The NHFP is set up by the Federal Government and implemented by the Central Bank of Nigeria with four components – the Nigeria Mortgage Refinance Company, mortgage guarantee insurance, housing microfinance and technical assistance.
The project is being funded with a $300m procured from the World Bank during the previous administration.
The Head of NHFP, Mr Adedeji Adesemoye, said mortgage banks principally had two challenges of liquidity and credit, adding that the NMGC would solve the credit aspect of the problem.
“For credit risk, commercial and mortgage banks need another company to share with them, which is what the guarantee company is, so they pay the guarantee fee of about three per cent of the mortgage and the guarantee company will provide the guarantee just the way people pay for insurance,” he said.
According to him, the NMGC is expected to be a PPP arrangement, where the private sector holds the equity and the government can lend to them tier-two capital, just like the Nigeria Mortgage Refinance Company.
He added that it would enhance credit to primary mortgage banks as well as commercial banks.
“When there is a default, the guarantee company will pay certain percentage of the money when a foreclosure sets in, while the bank keeps originating mortgages,” he said.
Among the benefits the new company is expected to bring to the mortgage industry are access to housing finance and lower down-payment, access to higher amount of mortgages, better loan terms and conditions, standardisation, consumer protection and financial literacy for borrower while mortgage banks will have lower credit risk of up to 40 per cent protection for the principal, larger business volumes and reduced capital requirements.
Mortgage banks are also expected to have viability of mortgage operations and access to ancillary services.
According to the Director, Other Financial Institutions Supervision Department of the CBN, Mrs ‘Tokunbo Martins, the upcoming mortgage guarantee programme is designed as a private sector commercial enterprise.
“It is paid for by the borrower which is expected to generate income – thus creating a commercially viable and sustainable product,” she said.
Martins explained that it would provide a risk-sharing mechanism between the mortgage guarantee provider and participating mortgage lenders, which risk would have been borne by the mortgage lenders alone.
She added that it might also provide reduced capital charge through capital relief for legal mortgages and also produce a much more sustainable product uniquely suited to the Nigerian system.
Martins said, “Mortgage guarantee provides credit default loss protection to mortgage lenders enabling them to increase the loan to value ratio by reducing or removing the necessity for equity contribution by mortgagors.
“Mortgagors can thus access higher value mortgages with lower down payments while the lender can expand into new markets or deepen existing ones. Mortgage guarantee indemnifies the mortgage lenders at the point of default of the mortgagor unlike mortgage insurance which indemnifies mortgage lenders after foreclosure process has been concluded.”
As at the end of 2018, it was gathered that stakeholders were finalising the business plan for the company, with Martins saying that the consultants, while cautiously optimistic about the viability of the project, had identified multiple constraints to its success, several of which they were familiar with.
She said the biggest constraints were the 1978 Land Use Act as well as cultural biases towards mortgage loans.
She however stated that stakeholders had been encouraged by the interest shown at state government levels, adding that there were also expectations for significant progress in mortgage friendly legislation in future.
Originally published in The Punch