Mortgage industry’s low profitability level discourages investors
Adeniyi Akinlusi is the President, Mortgage Banking Association of Nigeria (MBAN) and Chief Executive Officer, TrustBond Mortgage Bank Plc. In this interview with Property & Environment Editor, CHINEDUM UWAEGBULAM, Akinlusi who is a fellow of the Institute of Chartered Accountants of Nigeria (ICAN) and Chartered Institute of Taxation, believes that an intervention fund for mortgage banks will achieve single digit interest rate. He also listed ways to improve National Housing Fund (NHF) contribution and create enabling environment for mortgage banking.
The low penetration of mortgage financing has been worrisome. Nigerian workers that contribute 2.5 per cent of their monthly salary to the National Housing (NHF) have been denied right to a safe, decent and affordable home. What has been the problem with the NHF and mortgage in Nigeria?
One of the challenges of mortgage financing in Nigeria is high interest rate, which can be easily linked to high cost of funds and limited supply of loanable funds for long duration. But this is gradually being addressed by extending the source of mortgage funding beyond the National Housing Fund (NHF) to include funds from the Nigeria Mortgage Refinancing Company (NMRC) as well. Another issue worthy of mention is the cumbersome and weak legal regulatory framework for land acquisition, which make mortgage process complex and expensive for property titling and land ownership coupled with absence of effective Foreclosure Law. It is important to note that these mortgage infrastructure deficits have heightened industry risk just as investors are discouraged from injecting more capital in mortgage business due to low level of profitability compared to other vibrant financial sectors.
The Federal Mortgage Bank of Nigeria (FMBN) is the custodian of NHF while Primary Mortgage Banks (PMBs) are the conduits through which the funds are disbursed to individual beneficiaries. There are challenges with NHF, some of which have to do with misconception that NHF is one’s share of ‘National Cake’ with reluctance to pay back the borrowed NHF loan invariably leading to high default rate. Notwithstanding, the demand for NHF loan is higher compared to the contributions received, hence funds available for loan are not adequate to meet demand. For instance, inspite of the fact that loanable amount on NHF has since increased to N15million from previous N5million, the maximum loanable value of N15million NHF loan may not be adequate for the price of current housing stock in some areas, especially Lagos, Port Harcourt and Abuja. Also, participation level from both private and public organizations is still low as most organizations are still out of the NHF contribution net. There is also the problem of inability of subscribers to provide the required equity contribution although this is being addressed with the recent approval of management of FMBN to waive equity requirement for loans of N5million and below. This would also be addressed with the introduction of mortgage guarantee scheme with selected insurance companies, where the equity not paid at time of disbursement is guaranteed and redeemed on default.
Do government need to further create an enabling environment for mortgage banking. If yes, how?
Although, government is trying to address this, there are still a lot to be done to improve the enabling environment for the mortgage banks through provision of intervention funds just as it was done for the agricultural sector to achieve single digit interest rate; provision of infrastructure in undeveloped areas and satellite areas to open up more areas; reduction of transaction cost and deliberate effort to ease the bureaucracy of titling and registration of property; review of mortgage related laws in the country and passage of relevant bills such as foreclosure Law, securitization, mortgage asset registry; and de-risking the sector to attract private capital with effective foreclosure mechanism.
Unlike in other climes, the mortgage banks still lend at very high interest rates, which negate the quest for a virile mortgage sector. What has caused this? Is it possible to streamline the system to offer a single digit interest rates, spread over 20 to 25 years? How can this be done?
In Nigeria today, only NHF loan attracts single digit interest rate, which is 6 per cent per annum with repayment spread over 15 to 25 years. Unfortunately this has proven insufficient to satisfy the yearnings of qualified contributors under the NHF scheme hence, the need for other sources of mortgage funds to complement NHF. So the contribution of NMRC through refinancing of mortgages is commendable. However, some of the reasons for high mortgage interest rate include: high cost of funds; dearth of mortgage finance and limited supply of loanable funds with long duration; mortgage infrastructure deficits which heightened industry risk; mortgage industry’s low profitability level which discourages investors from injecting more capital.
Many organisations and corporate entities have refused to make contributions to the NHF. But MBAN is clamouring for the increase of 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. Why do you think the workers should have more burdens despite their hues and cries on inability to access the fund? What will you suggest as penalties for corporate organisations that failed to pay contributions to NHF? Do FMBN take them to court?
Mortgage Banking Association of Nigeria (MBAN) did not clamour for application of 2.5per cent on gross salary rather MBAN is advocating for participation of private and public institutions not presently contributing to NHF, as NHF is the only source of single digit interest mortgage fund in the industry. There is no doubt that FMBN is currently doing a lot to improve its operations for more efficiency, and the drive towards increased contribution would go a long way to attract more contributors to the NHF scheme. Other ways to improve NHF contribution is to continue stakeholders’ engagement with continued awareness of benefits of NHF particularly to low income earners.
Currently, the Federal Government is promoting a N100 billion Family Home Fund as part of its Social Housing Programme, which will provide inexpensive mortgages to Nigerians. How will these work with the mortgage banks? On the fund, some experts say the micro finance banks will be the best for the scheme. What is also your take on this comment?
Primary Mortgage Banks (PMBs) are also major partners to the scheme and are working closely with Federal Government and CBN on the Family Home Scheme. One of the ways the N100billion Housing Fund would be impactful is to set aside some fund to create supply of housing stock and some other fund to support demand for housing stock. I will also expect that the scheme would leverage on NMRC platform for sustainability of the Family Home Scheme. In terms of mortgage transactions, PMBs are licensed to fund mortgages (long term) and have developed special capacity to administer mortgage transactions specially.
MBAN has been meeting with FMBN to allow mortgage institutions issue bank guarantees for both NHF and Estate Development Loans. Why is this necessary for the sector?
Actually, FMBN meet monthly with stakeholders like MBAN, REDAN etc in order to continue to realize the various objectives of NHF and improve efficiency.
Mortgage banks have a better understanding of the mortgage business thus issuing Bank Guarantees would further ease the process for potential NHF beneficiaries and estate developers alike. The fact that commercial banks are not deeply involved in NHF, they tend to create bureaucratic bottlenecks for mortgage banks to gain access to the funds they (commercial banks) guaranteed. However there are other options, which include insurance bonds, which are acceptable to FMBN and are being used, thus increasing the funds disbursed by FMBN.
Recently, National Assembly refused to make affirmative legislation on the amendment of the Land Use Act 1978. What does this portend to the real estate sector, especially on land acquisition for housing development?
The process of registering titles would continue to be cumbersome, complex and expensive. Invariably, cost of producing housing units will continue to increase. Also housing stock will continue to be inadequate, as access to land for development remains difficult.
Mortgage bankers, recently visited the vice president, Yemi Osinbajo in Abuja, what were the major issues discussed? Did your association also push for the re-capitalisation of Federal Mortgage Bank of Nigeria to N500 billion and review mortgage related laws such as foreclosure law?
Relevant issues regarding the growth and development of the mortgage industry were put forward. For instance, the recapitalization of FMBN for sustainability and efficiency, mortgage infrastructure deficit and Formula 1:3:1 for ease of doing business. That is, one stands for 1 per cent of property as titling cost: the three stands for issuance of title within three days: and the last one stands for one desk to start and complete the whole transaction.
With MBAN being the chief promoter for the Nigeria Mortgage Refinancing Company, are your members satisfied with the operations of the firm, Can you say, the key objectives for setting it up have been met. How?
MBAN is not the chief promoter of NMRC but one of the major stakeholders and was closely involved with Federal Government and CBN in NMRC take-off. This is the reason for PMBs considerable shareholding in the company.
In terms of achievement, I would say that a lot has been achieved and stakeholders are still working hard to make the framework sustainable.
Although stakeholders still have a lot to do in terms of reducing the cost of funds, market development and advocacy with Federal Government for effective foreclosure process, MBAN would continue to encourage financial inclusion by working with other stakeholders to develop underwriting standards for informal sector/self-employed and non-interest mortgages to deepen the market and for financial inclusion.