The Central Bank of Nigeria (CBN) last week released an Exposure Draft of the Regulatory and Supervisory Framework for the operations of Mortgage Refinance Company (MRC), calling on Deposit Money Banks (DMBs) and Primary Mortgage Banks (PMBs) for comments, observations and suggestions.
Operators see this as a welcome development believing that it will help address the funding challenges faced by the industry.
Olayinka Abimbola, president, Mortgage Bankers Association of Nigeria (MBAN), and CEO, Resort Savings and Loans plc, says the Nigerian mortgage sector has some peculiar problems.
One of these problems, according to Abimbola, is long-term funds while others include liquidity, interest rate, foreclosure laws, Land Use Act, etc., noting “we are saying that liquidity is the key thing; we need to create a vehicle which, after creating a primary mortgage, we can now float those mortgages onto that vehicle and the vehicle will create liquidity.”
A Mortgage Refinance Company (MRC), according to the CBN, is a financial institution established to provide short-term liquidity and/or medium- to long-term funding or guarantees to housing finance lenders.
The objectives of the MRC shall be to support mortgage originators such as PMBs and DMBs to increase mortgage lending by refinancing their mortgage loan portfolios.
It shall act as an intermediary between originators of mortgage loans and capital market investors, who typically are looking for long-dated high quality securities.
According to the CBN, the MRC shall commence operations with, and maintain at all times, a minimum paid-up capital of N5 billion, or such higher amount as the bank may prescribe.
Also, every MRC shall maintain, at all times, a minimum ratio of core capital to total assets (leverage ratio) of not less than 5 percent.
Olufemi Fabamwo, director, Other Financial Institutions Supervision Department, CBN, in a circular to all DMBs And PMBs, notes: “The management of the CBN has approved the Regulatory and Supervisory Framework for the operations of a Mortgage Refinance Company as an exposure draft.”
The framework provides for the licensing and establishment of a MRC as a specialised second-tier institution that would provide short-term liquidity, long-term funding and/or guarantees to mortgage originators and housing finance lenders.
The CBN has listed the activities the MRC shall engage in, which include refinancing of fully secured mortgage loans, investment in debt obligations issued or guaranteed by the Federal Government or any of its agencies, issuing guarantee for mortgage loans as part of its off-balance sheet engagements, issuing bonds and notes to fund its purchase of eligible mortgages.
On the other hand, the MRC shall not engage in the following activities: grant consumer or commercial loans, acceptance of demand, savings and time deposits, or any type of deposits, real estate construction finance, estate agency or facilities management, project management for real estate development, management of pension funds/schemes, all other businesses not expressly permitted by the CBN.
The sources of funds for the MRC shall consist of the following: equity, paid-up share capital and reserves, long-term loans from sponsors, debentures/bonds, loans from national and supra-national governments and other bodies, and funds from developmental partners.