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CBN floats Nigeria’s first mortgage guarantee firm, doles out N7.5billion

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Efforts to revive the mortgage sub-sector and reposition the housing financing institutions in the face of current demands and challenges have received a boost, with recent efforts to establish a mortgage guarantee company by the apex bank.

After an initial effort that eventually turned out to be a ‘false start’, a fresh move to enable mortgage lenders to achieve the mandate of creating mortgages to improve homeownership may be in the offing, that would rejuvenate the sub-sector as part of the wider plans of overhauling housing financing institutions in the country.
  
The new move is being piloted by the Central Bank of Nigeria (CBN), after its circular for the regulation of the operations of the Mortgage Guarantee Companies (MGC) late last year. MGC is expected to further deepen the mortgage market through increased access to mortgage finance and sharing of credit risk with mortgage lending institutions.

Specifically, MGC is to support mortgage originators such as Primary Mortgage Banks (PMBs) and commercial banks to increase mortgage lending by guaranteeing or partially guaranteeing against losses resulting from borrower defaults on their residential mortgages.

MGC will also facilitate increased access to housing finance by reducing or replacing the requirement for equity contribution that would otherwise disqualify mortgagors from accessing mortgages as required by the uniform underwriting standards.

Under the financial requirements, a prospective company seeking license would have a minimum paid-up capital N10 billion, non-refundable application N100,000, non-refundable licensing fee N1 million and change of name fee N50,000.

The Guardian gathered that the stringent measures for the establishment for the MGCs and the COVID-19 pandemic impacted on the MGC scheme, as seven months after no single application was received.

But CBN is taking the bull by the horn and has decided to float the Nigeria Mortgage Guarantee Company (NMGC), which will be licensed under the newly issued guidelines. The NMGC is expected to be the forerunner for the scheme in the country.

In the proposed company, CBN will help capitalize NMGC with N7.5 billion and offload after five to eight years. Nigeria Mortgage Refinancing Company (NMRC) is coming into the deal as the anchor institution, which is willing to provide N2.5billion out of N10billion required minimum equity capital.

NMGC will invest in government securities; assume ownership of a foreclosed residential property if a lender is unable to dispose of it; provided that such holding will not exceed 20 per cent of its shareholders’ fund unimpaired by losses without the Bank’s prior written approval.

The mortgage guarantee firm will also issue bonds and notes to fund its operations; provide technical assistance to lenders on credit and business development related activities to increase industry expertise.

CBN Deputy Director, Adedeji Adesemoye who confirmed the development The Guardian, said: “it’s not the licensing condition that is stringent but mortgage guarantee company is not business of commoners. It’s a specialized financial institution. The private equity market is seriously affected by the current economic outlook.”

Adesemoye who doubles as a Director in Federal Mortgage Bank of Nigeria (FMBN) disclosed that the National Pension Commission (PENCOM) is willing to partner in the use of NMGC services to release some proxy securities for holders of Retirement Savings Account (RSA); to utilize 25 per cent of their pension savings as equity deposit to own their home under a sustainable mortgage loan agreement.


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