After over three decades of dismal performance as the nation’s secondary mortgage institution something seemingly interesting has started happening at the Federal Mortgage Bank of Nigeria (FMBN).
Set up in 1992 by the federal government as an intervention in the country’s mortgage and housing sector, the story of FMBN has been that of low performance, especially in its supervisory role over the operations of the National Housing Fund (NHF) which was also set up by the federal government as a vehicle for accessing low rate, single digit mortgage.
All these years, it has been a tale of woes for those who contribute to NHF and have applied for housing loan through the fund. Apart from the tortuous process, most times, the funds are not available. But the narrative has changed. For the first time in many years, the federal mortgage declared a 2016 full year surplus of N2.7 billion against a target of N1.5 billion. This is against the backdrop of yearly losses in the past five years.
The good news today is that the apex mortgage bank, from March 2015 to March 2017, within the purview of the NHF, granted 2,044 mortgage loans worth N15.205 billion and facilitated the construction of 1,878 housing units funded with N10.417 billion. Another good news is that the bank recently got approval for an amendment to the equity contribution payment process of prospective home owners to be capitalised over a period instead of being paid at once.
Though the new strides could be attributed to the commitment of the housing ministry to bring some life into the inactivity that had defined the mortgage and housing sector in the country, analysts are of the view that what is happening at FMBN may be borne out of the efficiency and effectiveness in the operations of the private sector led Nigerian Mortgage Refinance Company (NMRC).
Concerns have been raised about the wisdom in allowing the two to operate side by side as secondary mortgage institutions, but experts say those concerns are unnecessary, as the two have their functions well cut out for them, by reasons of their focus, composition and operational guidelines.
On January 16, 2014, the NMRC opened for business to provide secondary mortgage market services for primary mortgage lenders for on-lending to teeming Nigerian housing loan applicants. To open for business, the company was registered; the Central Bank of Nigeria (CBN) granted it approval, the board was set up, and World Bank provided a 40-year loan of $300 million, among other conditions. It is a strictly private sector-led company that is run more like a commercial bank.
The FMBN has a different charter. It gets its funds from contributions by workers in the formal sector. It is a federal government agency that provides mortgage loans to home loan applicants through the National Housing Fund (NHF) which it supervises.
The two institutions, clearly, have their differences and similarities. The major difference between them is that whereas government appoints the FMBN board and largely guides its operations, the NMRC appoint its own CEO and members of the board from its subscribers. It is ‘free’ from government interference.
The two companies, even in their similarities as secondary mortgage markets, also differ significantly in their ownership and organizational structure and, according to Femi Johnson, a mortgage operator; they exist and operate side by side as is done in other climes such as Mexico and USA.
“In USA, Mexico and other places, there are similar institutions that run parallel like what we see with FMBN and NMRC. In those places, some of these institutions are funded by the private sector, some by the government, and others from workers salary”, Johnson informed.
In terms of operational model, the difference between the two institutions is fundamental in that for a primary mortgage lender to get money from the FMBN for on-lending to a customer, he must know who his customer is. He will appraise the customer based on the parameter the FMBN has set and if the customer meets the criteria, the lender has to check the property for which the loan is to be given, evaluate it and, based on that, package an application on behalf of the customer to FMBN and, on the basis of this, FMBN will release the money that the lender will give out to the customer.
The problem here is that even though the lender has done his due diligence and every other thing, the FMBN will still do it again, a second time, and if it is okay with that, it will disburse to the lender and where it is not okay with the application, it will not disburse and, until the lender gets the money, he will not disburse to the customer.
This is a long process that will be there for as long as two years which is why a lot of people run away from NHF contribution because they find it difficult to get the loan when they need it. It is hoped, however, that the amendment to the equity contribution payment process of prospective home owners to be capitalised over a period instead of being paid at once will take care of that.
With NMRC, it is a different ball game. The procedures are short and sharp, giving the customer both ease and convenience of transacting business. Here, the money the lender gives out to the customer is his and so giving it out is his normal course of business. After lending, he goes back to NMRC to refinance it for the company to reimburse him so that he can lend to other customers. In this case, he doesn’t have to wait for anybody before lending. It his money and so he can lend easily and directly to whoever applies.
Gradually but steadily, NMRC is gaining traction in the mortgage market, especially with its core function of leveraging funding for mortgage refinancing and, by so doing, provides liquidity for the mortgage market to refinance the mortgage portfolio of its member banks, and improves affordability by reducing mortgage rates, extending mortgage terms, and lowering deposits.
Chuka Uroko
