Mr. Mac-Yoroki Ebilate is the President, Mortgage Banking Association of Nigeria (MBAN) and Managing Director, CityCode Mortgage Bank Limited. He spoke with CHINEDUM UWAEGBULAM on the need for initiative measures to improve housing finance; reform the Land Use Act and upward review in the National Housing Fund contribution of 2.5 per cent basic salaries.
There has been a misunderstanding about the strength and stability of the Nigerian Mortgage Sector, as contribution of mortgage finance to GDP is about one per cent. What is the current status of the mortgage market in Nigeria such as the percentage of housing units financed?
Let me affirm that the strength of a mortgage finance system in any country is not limited only to the volume of transactions generated or the size of the balance sheets of financial institutions within that system. Rather, the overall strength of a mortgage finance system is primarily determined by its resilience to withstand internal and external systemic shocks and its ability to consistently provide access to long-term finance at an average tenor of 20 years.
This is because mortgage financing is unique and different from commercial banking and you would observe that the subprime mortgage crisis, which occurred in the USA in 2007 and contributed to the global financial crisis in 2007-2008, demonstrated that in matters of mortgages, volume does not necessarily translate to strength.
Frankly, mortgage finance has not made a significant contribution to Gross Domestic Product (GDP) due to several factors, which are fundamental in nature including legal, regulatory, monetary, political and social.
A major one being due to cultural issues in Nigeria; most of the residential properties were purchased on cash basis among those with the wherewithal, thus adding to the constraints impeding the creation of mortgage loans and development of the mortgage banking sub-sector.
Aside, an average Nigerian prefers to build on an incremental basis rather than taking a mortgage in addition to sourcing for funds from non-conventional sources, which are not captured in determining the contribution of mortgage to GDP.
Unlike in other climes, the mortgage banks still lend at high interest rates, which negates the quest for a virile mortgage sector. What has caused this? Is it possible to streamline the system to offer single digit interest rates, spread over 20 to 25 years? How can this be done?
There is a big difference between mortgage loans and commercial loans; mortgage loans are usually products-based, which distinguish them from other loans and make them reasonably cheap in terms of rates. For instance, we have National Housing Fund (NHF) loans and Rent-to-Own, which are products-based mortgages at the rate of 6 per cent and 9 per cent respectively through the Federal Mortgage Bank of Nigeria (FMBN).
Moreover, Help-to-Own has an incremental rate from 3.5per cent to maximum of about 8.5per cent as products-based mortgage by Family Homes Fund Limited (FHFL); while products from Nigerian Mortgage Refinance Company though have a rate of double digit, but has really provided competitive rates to those who might not be keen in products-based mortgage. It is worthy of note that the new policy implementation approved by the Federal Government through its agency, National Pension Commission (PENCOM) with regards to accessing 25 per cent of the retirement savings towards mortgage equity contribution has brought about positive impacts on mortgage indices.
This has already created impetus in the mortgage sub-sector that will drive both the rate and volume of mortgages. In the coming days we are confident the mortgage loan rate will be coming lower than what they are currently.
The association has been on a consistent and constructive/engagement advocacy with the Central Bank of Nigeria (CBN) as the statutory regulatory agency for the mortgage banking sub-sector, as well as other stakeholders for a combination of short, medium and long-term measures to address the issue of high interest rate on mortgage generally.
In this regard, the association, via its advocacy, succeeded in receiving the approval of the CBN on a novel idea of Mortgage Interest Draw-Back Programme (MIDP) for the interest rate matching fund as an initiative to reduce lending interest rate.
We hope the Federal Government will continue to act proactively in taking measures that will see more products-based mortgages that will ensure housing finance is no longer done through short term facility and commercial loan, particularly with the influence and experience of the current housing minister.
The association proposed an increase in the monthly NHF contribution to 2.5 per cent of total salaries of contributors as against the current 2.5 per cent of the basic salary. Does your association still hold that opinion? How do we reform the scheme?
In light of the burgeoning housing needs, the absolute truth is that the contribution of 2.5 per cent of basic salaries to the scheme would only amount to a meagre pool of funds, which may not make a significant impact in addressing the housing finance needs of Nigerians.
Besides, considering the economic realities in the wake of the new developments, even 2.5per cent of total salaries would never be adequate and as such there is the critical need for upwards review of the amount contributed to the scheme.
However, the fact is that amendment of contribution to the scheme could only be effective through constitutional amendment to the NHF Scheme Act, which would take quite some time.
Be that as it might be, operations of the NHF Scheme had undergone significant internal restructuring in the recent past that resulted in shorter turn-around time of NHF loans, better transparency of the scheme and higher volume of transactions that had been generated.
It is a known fact that institutional NHF contributors such as banks and insurance companies have failed to make their required investments to the scheme. What will you suggest as penalties for such organisations?
By the provisions of the NHF Act, commercial banks are required to contribute 10 per cent of their loan and advances at an interest rate of 1 per cent yearly above the interest payable on current account by banks; while insurance companies are required to contribute a minimum of 20 per cent of their non-life insurance funds and 40 per cent of life insurance funds to the NHF scheme. The States and Federal governments are also mandated by the Act to contribute to the NHF scheme regularly.
However, rather than towing the path of sanctions and penalties, the FMBN and other stakeholders in the housing finance sub-sector should be in effective and constructive engagement with the statutory regulatory agencies for the affected sub-sectors such as the CBN, as well as Nigeria Deposit Insurance Corporation (NDIC) and National Insurance Commission (NAICOM) for mutual outcomes on the matter that would positively impact the scheme, with major highlights on transparency and accountability that had recently been achieved in the contributory scheme.
Coupled with the above, review of the NHF Act similar to the revised Pension Act of 2004 would re-ignite the scheme as the NHF Scheme holds significant potentials for long-term pooled funds for mortgages in Nigeria. There also exists great potential for the pooling of funds for mortgage financing through mandatory contributions from the workforce; and in light of the beneficial effects that the reform had on the Pension scheme; since the enactment of the Pension Reform Act of 2004, triggered strong growth in the contributory pension scheme estimated to be N16.76 trillion as at December 31, 2022, which has fatally eclipsed the total contribution to the NHF scheme in its over 30 years of existence. The Federal Government too would do well by making its required statutory contributions to the scheme and enforcing the other institutional contributors to do the same.
The National Assembly refused to make affirmative legislation on the Amendment to the Land Use Act 1978. What does this portend to the real estate sector, especially land acquisition for housing development? How has this issue affected the mortgage system?
A critical examination of the state of housing and housing finance in Nigeria revealed that apart from macroeconomic issues, two critical areas which are also undermining the development of mortgage financing and real estate sector alike are: legal framework and land administration system. And as a matter of fact, these two issues have their roots deeply in the Land Use Act (LUA) 1978 vis-à-vis land ownership in Nigeria.
The Act vests ownership of all land to the Executive Governor of each state, who has the right to allocate land through a leasehold system. The lease is generally for 99 years less one day and the Right of Occupancy is legalised with a Certificate of Occupancy (CofO)) issued to the beneficiary of such land.
The LUA impedes progress in housing and housing finance through the absence of clear property and security rights. Absolute power of revocation and need for mandatory governor’s consent, which combined to constitute delays in the perfection of mortgages.
Expunging the LUA from the Constitution of Nigeria and the expedited passage of housing-related pending and new bills at the National Assembly would facilitate the establishment of institutions, systems, and processes that would strengthen the legal and regulatory environment for mortgage finance and improve performance of the real estate sector.
The attendant effect of challenges posed by the LUA on mortgage finance is low mortgage penetration. Therefore, there is a need for a Digital Depository and Clearing System, that will remove all kinds of bottlenecks associated with the current system and human bias tendencies playing out in securing title to lands and its subsequent transfer of ownerships among interested parties, particularly for mortgage transactions.
MBAN was at the forefront for the establishment of the Nigeria Mortgage Refinance Company (NMRC) Plc. Do you believe the institution has performed satisfactorily? What have been the gains of the refinancing company to the Association Members?
MBAN was not only at the forefront of the advocacy for the establishment of the NMRC, the idea was actually the brain child of the association and thankfully, with the buy-in and effective support of the Federal Government, it has become what it is today. To a very large extent, we are of the strongest view that NMRC has justified its relevance and fulfilled its Public-Private Sector purpose, although from all intents and purposes there is always room for improvements by any entity.
There has been much talk about the establishment of the Nigeria Mortgage Guarantee Company (NMGC) by your Association. How would the initiative impact activities of your members and the real estate market?
A mortgage guarantee company is a mortgage credit enhancing financial institution established to provide guarantees or partial guarantees to mortgage borrowers towards equity contribution to mortgage loans, as well as buffers of cash-flows to mortgage lenders in the advent of mortgage foreclosure.
The Nigeria Mortgage Guarantee Company (NMGC) is expected to further deepen and broaden the mortgage market through increased access to mortgage finance and sharing of credit risks with mortgage lenders. Specifically, it is to support mortgage originators such as Primary Mortgage Banks (PMBs) and Commercial Banks (CBs) to increase their portfolios of mortgage lending.
It would also facilitate increased access to housing finance by providing enhancement to the requirement for equity contribution that would otherwise disqualify mortgagors from having access to mortgages as required by the Uniform Mortgage Underwriting Standards approved by stakeholders.