PROPERTY NEWS

Prospects are indeed bleak for the nation’s mortgage sector, despite a range of sweet-sounding reforms put in place in recent years.

The tottering housing financing machinery appears to have run into fresh a hitch, in the light of efforts to achieve a viable delivery system.

Managing Director of the Federal Mortgage Bank of Nigeria (FMBN), Mr. Abdulsalam Ahmed, was somewhat down-to-earth in his assessment of the situation as he confronted members of the Senate Committee on Banking, Insurance & Other Financial Institutions recently in Abuja, the Federal Capital City (FCC).

Faced by a long list of challenges such as low capital base, under-subscribed National Housing Fund (NHF) scheme, high building materials’ cost, absence of mortgage insurance, huge outstanding loan commitment and low income of prospective borrowers, the mortgage lender is hinging his hopes on some short-, medium- as well as long-term measures to turn things around.

For instance, he stated that, within six months, the apex mortgage house would aside consolidating on capital market activities with the issuance of subsequent tranches of its N100 billion bond to refinance the sale of Federal Government houses in Abuja and other parts of the country, support legal and regulatory framework review including amendment/replacement of unfriendly housing-related laws to ease mortgage transactions.

Additionally, the body would consolidate NHF collection and funding operations to improve efficiency and effectiveness of financing workers/contributors’ homeownership.

This, Ahmed submitted, involved the pursuit of government approval for commencement of matching contributions by employers to complement workers’ contributions and compliance with statutory contributions by banks and insurance companies as provided by the NHF Act.

According to him, the rebranding of the FMBN would give it a vibrant personality and image, while repositioning it as the foremost secondary mortgage institution in the country and create awareness about its products and services.

In line with the debt recovery spirit current sweeping across the financial sector, the FMBN boss submitted that its officials had commenced processes of debt recovery of non-performing loans to improve the institution’s profitability and financial position.

He further stated that in the medium term within six months and a year, the organisation would issue mortgage bonds that will hopefully diversify its resources in order to meet its mandate.

He said, "We will attract foreign funding and investments into the Nigerian mortgage sector through the securing of facilities from international financial and multi-lateral institutions as well as private international investments once the global financial crisis eases up.

"We will likewise commence liquidity facility provision for mortgage originators as an expansion of its secondary mortgage operations. Under this arrangement, loans will be bought off originators on recourse or non-recourse basis as a means to providing liquidity to the primary mortgage market.

"Apart from introducing mortgage and title insurance as new products to mitigate mortgage-related risks and ensure affordability, we plan in the medium term to expand mortgage financing to the non-salaried informal sector that has been long neglected due to the lack of property titles, formal income and non-affordability."

With securitisation, the FMBN would have concluded the process of integrating the mortgage and financial markets for housing financing.

Beyond a year, Ahmed disclosed that, with securitisation, the FMBN would have concluded the process of integrating the mortgage and financial markets for housing financing.

Securitisation describes the process whereby securities are created out of a pool of assets placed under the legal control of the investors through a special intermediary created for this purpose. The securities are subsequently liquidated on the primary strength of the assets in the pool, but may be supported by "credit enhancements" provided by the originator or organised through external agencies.

Similarly, the secondary mortgage institution contended that it would adopt a microfinance banking strategy for mortgage delivery, which entails the provision of housing financed using the microfinance medium to formalise financial and economic assets for the home owners that are currently informally held.

In an apparent bid to replicate the U.S. housing finance model that embraces both the depository- and capital market-based mortgage-financing systems, the FMBN intends to expand the coverage and resources of the depository funding system.

Also, the FMBN intends to embark on commercial lending as opposed to the current concessionary lending practice. Resources for commercial operations, Ahmed noted, would be sourced from the capital market and applied as market-determined, risk-based priced loans.

He said, "The long-term objective is for commercial loans, which are suitably adjusted for risk and market pricing, to serve as more acceptable underlying assets for the issuance of financial securities in local and international markets."