The key elements for the growth of a national mortgage finance market are gradually taking shape. Major housing industry players including mortgage banks, financing institutions, and developers are working together in a more structured fashion.
The country’s mortgage market, which has for several decades, depended on bank deposits now raises longer-term funds from the Capital Market to make mortgages of up to 20 years possible and the regulatory framework for conducting mortgage transactions is being strengthened to reduce investment risk. Also, technology is now playing a central role in streamlining and integrating mortgage transaction processes.
This creates a pool of reliable industry data that will support strategic policy formulation to drive housing development. Overall, in terms in market depth, liquidity and structure, availability and affordability of residential mortgages, it is evident that the housing and mortgage industry has recorded significant progress in the last three years.
This turnaround is thanks in large part to the strategic interventions of the Nigeria Mortgage Refinance Company (NMRC), a private sector-driven mortgage facility that started operations in 2015 with the mandate to develop the country’s primary and secondary markets.
To put things in perspective, consider the state of the industry before the NMRC was established in 2013 as a component of the Nigeria Housing Finance Programme – a program initiated by the Federal Ministry of Finance in collaboration with the Central Bank of Nigeria (CBN), Federal Ministry of Lands, Housing & Urban Development (FMLHUD) and the World Bank/IFC. The country’s 60-year old mortgage industry was in a dire state: loose and without financial depth.
A combination of liquidity shortages, systemic and structural challenges made the growth of the sector difficult. Mortgage loans were hard to access. Even when available, they were provided at premium interest rates of upwards of 28 percent per annum. Payback periods were short with the longest being around five years.
The lack of a robust secondary mortgage market with access to long-term finance and a pro-active institution to implement structural reforms stunted growth and created an inefficient system where players in the sector operated as disparate entities. The result is the often-quoted huge housing deficit of over 17 million units, which the World Bank estimates would cost about N59.5trillion to bridge.
Tapping Long-Term Mortgage Finance
In the past four years, NMRC has in pursuit of its mandate to break down barriers that hinder affordable housing delivery taken several impactful actions to reset the country’s housing market on the path of sustainable growth and impact. The most notable feat is successfully linking the mortgage market to the capital market and deepening liquidity in the system. In the past two years, NMRC has issued bonds and raised a total of N19 billion from the capital market to refinance mortgage loans that are provided by mortgage and commercial banks that it partners with: N8 billion in July 2015 and N11 billion in June 2018. To date, NMRC has refinanced mortgages to the tune of N18 billion.
What is innovative about the NMRC is the catalytic way it deploys its funds through mortgage and commercial banks that give housing loans. NMRC uses the long-term funds that it raises from its bond issues to purchase loans that mortgage and commercial banks give to working Nigerians. The implication is that, instead of waiting to recoup the loans through monthly payments over periods that may range from ten to 15 years, NMRC ensures they get the full value of the loans after six months. NMRC’s capacity to make this quick liquidity conversion has boosted the financial standing of its partner mortgage banks, empowering them to process even more mortgages to other potential homeowners.
The current management of NMRC, under the leadership of Mr. Kehinde Ogundimu, plans to increase the frequency and size of the company’s bond issuance program in order to rev up refinancing activities for greater impact going forward. To achieve this, the new management at the last Annual General Meeting (AGM) in August 2018 secured shareholders’ approval to triple its bond issuance program from N140 billion to N440billion. This expansion inspires hope for greater liquidity for providing more housing loans in 2019 and beyond.
NMRC has also led efforts to promote the creation of a strong legal framework and standards to support the activities of key players in the mortgage market. This includes the development of uniform underwriting standards for both the formal and informal sectors of the economy. The standards set clear industry guidelines that mortgage banks are expected to comply with in originating and processing mortgages that can be refinanced by NMRC. They serve the strategic purpose of creating a strong system for mitigating risks associated with mortgage financing. Currently, all NMRC’s participating mortgage and commercial banks used these standards to process mortgage applications. The adoption of these standards by the banks and the strict application has helped NMRC to achieve zero default rate on the loans that it has refinanced so far.
NMRC has also developed a model mortgage foreclosure law for adoption by state governments. The Kaduna State government last year made history as the first state to adopt the law. The law is critical to creating legal mortgages across the country and ensuring the timely resolution of disputes. It is also necessary as a strong legal basis that empowers mortgage institutions to recover the balance of loans from defaulting borrowers by forcing the sale of the asset used as the collateral for the loan.
Fixing Structural Gaps
NMRC has also done a remarkable job of leveraging the power of technology to close structural market gaps and introduce efficiencies in the operations of the country’s mortgage market.
At the heart of this focus is the Mortgage Market System (MMS) which is currently in use by all key players use for their mortgage transactions. The system links important aspects of the housing value chain from construction finance to primary mortgage origination and administration to secondary market refinancing. The successful adoption of this system by all key stakeholders in the housing finance market is helping to forge integration of business systems and processes as well as enhance efficiency and transaction turnaround times.
NMRC is also building strategic partnerships with key stakeholders to push the frontiers of affordable home ownership across the country. First is the collaboration with the Kaduna state government which amongst other things would help deliver the State’s Millennium City Project. The project is projected to deliver 20,000 houses to civil servants and some private sector consumers at single digit interest rates.
The second example is the strategic partnership with the Ogun State Government to deliver quality and affordable houses to public servants in the state. Key parties to the agreement include the Ogun State Property Investment Corporation (OPIC) and Imperial Homes, TrustBond and Homebase mortgage banks. The three mortgage lenders committed an initial N4.5billion to the deal that would boost the capacity of OPIC to develop more properties for uptake by civil servants while NMRC will provide refinancing for the mortgages that would be provided.
Another good example is NMRC’s affordable housing partnership with Echostone Housing System, a United States-based global leader in smart housing solutions to provide innovative housing technology solutions to improve cost-effective housing delivery and increase housing stock in the country. The first phase includes support of EchoStone’s plan to deliver 750,000 housing units within a 10-year period across key states in Nigeria.
All these developments are exciting and hold great promise for the industry. A robust housing finance market is essential to achieving the country’s drive to provide affordable housing for the working population. NMRC has done a commendable job in collaboration with key industry stakeholders such as the Central Bank of Nigeria (CBN), Mortgage Bankers’ Association of Nigeria (MBAN), the Nigerian Deposit Insurance Corporation (NDIC) amongst others. Sustaining the momentum of reform and market development activities is critical.
– Isaac is a housing industry professional based in Abuja