PROPERTY NEWS

MORTGAGE operators and their customers, notably loan defaulters, have been gripped by a state of restlessness over the possible backlash of the recent sweeping changes in the banking sector on Primary Mortgage Institutions (PMIs).

The Guardian gathered last week that mortgage banks have been working to stem the tide of mass withdrawals to prevent some of the institutions from slipping into a liquidity crisis.

Besides, other steps being contemplated to remain afloat are the adoption of such belt tightening measures as possible salary cuts, reduction of staff strength and the sale of some key assets.

Top officials in the sub-sector have understandably been jittery over the developments and were not willing to be quoted on the "sensitive issue."

In fact, one managing director has reportedly announced to his workers that he would not be collecting his salary from the organisation and urged others to make similar commitments.

The crisis in the mortgage sub-sector, it was learnt, worsened last week, prompting a meeting of top executives of the Mortgage Banking Association (MBAN) - the umbrella body for all mortgage bankers - in Lagos, where the association resolved to make urgent representations to the Central Bank of Nigeria (CBN) on their plight and seek intervention.

The mortgage banks, The Guardian gathered, may have been in the doldrums for up to two years, a situation compounded by the inability of the CBN to hold its quarterly meeting of the Committee of Mortgage Institutions in Nigeria (COMIN), which is the meeting ground for chief executives of PMIs to interact with the apex bank's officials and rub minds on key policy issues.

The CBN had halted the COMIN meeting to enable it prepare for the formal announcement of a minimum capital base requirement of N100 million, which is yet to be made operational.

Mortgage subsidiaries of banks appear most concerned over the likely impact of the CBN clampdown on their operations, notably the issue of non-performing loans that run into billions of naira. Most mortgage firms, sources said, had traded on the property market with sizeable funds obtained from their parent companies, which are now still tied down in uncompleted structures in different locations across the country.

Initially, according to sources, the mortgage subsidiaries of the big banks had dominated activities in the sub-sector, driving the pace of housing development in the industry. Now, however, only a hand full of the PMIs are said to be comfortable in the midst of the financial sector reform. While some mortgage firms are reportedly pre-empting the supervisory agency by raising funds to shore up their shareholders base, other firms are said to have entered into talks exploring the possibility of mergers with other PMIs, in the event of Central Bank of Nigeria (CBN) eventually beaming its reform searchlight on the sub-sector.

Industry sources also disclosed that some mortgage firms, which have suspended new investments in the real estate sector and have been asking debtors to revive or pay up their non-performing loans. Consequently, several on-going negotiations on housing financing projects have been halted abruptly to enable the mortgage firms and their parent bodies face the evolving challenges.

But The Guardian has also learnt that some private developers and individuals with non performing loans have been making hasty payments to offset such facilities, rescheduling their loans and liquidating their mortgage debts, a development considered a positive fallout of the on-going banking sector reform on the mortgage sub sector. Indeed, some mortgage firms have threatened to formally write the CBN and EFCC on the debts owed to them.

However, operators in the industry are expressing divergent views over the development. While some see the sanitisation of the banking sector as a wake up call for the troubled sub-sector, others say the reform may deepen the mortgage system crisis of confidence.

According to MBAN Vice President and specialist in real estate finance, Dr. Mohammed Santuraki, "Most of the active PMI's in Nigeria are affiliates of banks, which they rely on mostly for their liquidity, therefore the current banking crisis certainly has an impact on the PMI sector. However, it is also known that because of the fragmentation and undercapitalisation of the PMI sector, banks still remain the major providers of mortgage loans with the PMIs only playing a marginal role.

"Now, because of the financial crises, most banks in the system are withholding lending generally, including consumer finance and mortgage loans. So, clearly, the progress we have seen over the last couple of years in the provision of consumer finance and mortgage loans from the Nigerian banking system is being rolled back. Banks are slowing down on loans to boost their precarious liquidity positions. So, it is a double tragedy for the mortgage sector."

Santuraki, who is the immediate past Managing Director of FBN Mortgages Limited, noted that, "It is paradoxical that the banking crises in U.S. and Europe was caused by excessive exposure of the banks to sub prime mortgages loans and other consumer finance products, while our own financial crises is as a result of excessive exposure to the import-dependent downstream petroleum sector and huge speculative exposures to stock market margin loans. To me, the exposure to mortgage loans is more socially responsible and have better economic benefits."

MBAN Deputy President (West), Mr. Femi Johnson, believes that there has been a run on the mortgage banks and an attempt to put them out of business. "The mortgage banking business has been killed because CBN didn't defend the small banks. We have been complaining that the policies are not conducive for us. But the CBN has come to nail the coffin for us," he said.

Johnson, who is the Managing Director, Homebase Mortgage Limited, confirmed that panic withdrawals are being witnessed in the mortgage banks, which have affected operations in the sub sector. He said job losses and salary cuts are imminent.

Santuraki said that the solution lies in the reformation of the PMI sector, to create a strong well capitalised sub-sector, backed by a large, possibly initially government sponsored liquidity provider. "That way you would create a sub-sector that would be independent of and complimentary to the banks in servicing real estate finance in the economy," he said.

Johnson also noted that CBN needs to establish a discount window. "We need to have a kind of window to pledge our assets, such as properties, to enable us borrow." He disclosed that his mortgage firm is considering creating a subsidiary that will go into building materials.

The Executive Secretary, MBAN, Mr. Kayode Omotoso, collaborated his views, adding: "Whatever happens in the universal banking sector will have an overflow effect on the PMIs because of our inter-relationship and interdependency. Our long term survival rests on establishment of a mortgage refinancing window, which is why we are pursing a liquidity facility for the sector from all stakeholders."