The Nigerian Mortgage Refinance company (NMRC) came into the Nigerian mortgage market as a child of necessity. Though it is private sector-led, the company has public purpose of bridging the funding cost of residential mortgages and promoting the availability and affordability of good housing for working Nigerians by providing mortgage lending banks with increased access to liquidity and longer-term funds in the mortgage market. In this interview, KEHINDE OGUNDIMU, the company’s CEO, speaks on its operations in the past 10 years, looking at its high and low points in respect of its mandate. He also speaks on the Primary Mortgage Banks (PMBs) and their mortgage refinancing; collaborations with sister companies, and projections into the future. He speaks with CHUKA UROKO, Property Editor. Excerpts:
When this company was set up, it raised expectations because we didn’t have a well-defined secondary mortgage market at the time. 10 years after, how far have you come in terms of delivering on your mandate?
I think that’s a very good question and it’s introspective. The question is about what impact we have made over the years. It’s always easy to look at the bigger picture. Is housing more affordable now after 10 years? Unfortunately, I would say we have not made an impact in some respects, because those things were outside our control or they were not well thought out. It was thought that they would solve all the problems.
I think there was an underestimation of the magnitude of the problem. The whole thing was interest rate-related. But bringing down interest rate is a function of the market which you don’t have control over. I think the expectation was not set right. It was too high.
But that said, what we have done is to be as efficient as possible so that whatever we get from the market, which is almost what the government will get, we pass that on to the banks. In the past, you know, if we are to add margin like the other institutions do, when you borrow, and your cost is probably 5 percent, while others might add 3 percent or five percent, in our case, we add almost zero to it.
Whatever we are getting from the capital market, apart from maybe slight operational costs, we pass it on. And our operation is very lean but efficient. So we’re able to pass on the money as it is to the banks and end users.
But, you know, eventually, the question is at how much does it get to the end users, because we go through the primary mortgage banks, and they have their own challenges which affect the rate before it gets to the end users.
What we are working on now is ensuring that the transmission mechanism from ourselves through the primary lending institutions is much more efficient, so that the margin that the primary institutions put on it is low, and then ultimately gets to the mortgagors.
If we do that, which we are already doing and we are seeing that, in the past, they used to charge something very high, but we have introduced the mortgage market system which helps the banks to reduce their risk, management practices and things like that.
But as long as the initial cost, which is the market rate is still high, it remains a big problem. That initial cost affects every other cost, not only the mortgage interest rate, but also the cost of housing itself.
Interest rate on the house is one thing, but because the person who is building the house also borrows from that market, maybe at 26 percent or more, he adds his own margin. Because of that, the cost of the house has gone up along with the interest rate to get the house as the mortgage has gone up.
But you know, these things happen sometimes in life. We just need to see how we address that macro issue which is reducing the expenditure, reducing budget and deficit, growing revenue, and things like that. This is because once you have that, then the other things will almost fall in line.
In terms of land registration, perfection and dematerialization of titles and things like that, we said we should have this aspect of the chain well sorted out, so that by the time this one is working well, the interest rate and everything will work.
Part of your mandates is refinancing mortgages originated by the primary mortgage banks (PMBs). How far have you gone with that? Are the PMBs forthcoming with mortgages for refinancing?
The PMBs have done a lot; it might not be big numbers. I mean, in terms of the number of banks, but the few ones that are active are actually doing it. Some of them are still trying to get their acts together but the ones working with us are very active. So, I’ll say they’re trying their best.
This is, maybe, because there are standards which sometimes people think are very high, which is also meant to protect the banks themselves. For instance, we require the banks to make sure that they have a good risk management process in place; that they have audited accounts, or have creditor or servicer rating. Those are things that ensure that they themselves are very efficient in their risk management practice.
And so, those who have scaled all those requirements are able to be more efficient and churn things out faster. So, the PMBs are there, but the number is small.
In measurable terms, how would you assess your performance in this area. In the last five years, for instance, how much of these mortgages have you been able to refinance?
We have done about N35billion in the last seven years. We would have done more but some of the things delaying us are that we are also trying to see how we get cheaper source of funding that we can blend with the market to arrive at something that is much cheaper because if we go to the capital market now, the pension funds they’ll give us will be at market rate.
We’re trying to see if we can get this and some other funding so that when you take what we get from the capital market and blend to that one which is a little bit cheaper, then you get something. So, that’s what we’ve been working on.
We have done several thousands of mortgages. We have even done with state governments; we’ve done with individuals across the country but I think the model that works best, especially when you have this kind of high interest rate, is where maybe, a state government or local government comes to either subsidize the rates or subsidize the cost of housing to make it more affordable.
What Ogun State did was to come to us and said can we work together for their civil servants. They have built some yellow top houses; they made sure that they bought things in bulk and then reduced the cost. So, the cost of the houses themselves came down and then they came to us and we agreed with a bank on refinancing because we want the civil servants to benefit from it and that worked well.
So, that’s a model that we’re trying to replicate; that’s if there’s mass housing because when you build one, two or three houses, there is economy of scale and so you need to do something bigger and then it reduces the cost of the housing.
Then we partner with another bank or a bank of your choice, so that that bank also knows that you are trying to achieve affordability and reduces the cost they are going to add on their funds.
You are expected to create liquidity in the financial system by going to the capital markets to raise funds. We heard when you made your first visit to the market. Have there been other such visits?
We have made three visits to the capital markets and raised about N30 billion. In fact, we have approval from our regulators, which is the Central Bank of Nigeria (CBN) and our directors to go for the fourth. We’ve had it for a year now, but because rates are high, we have decided to wait and see how that would pan out. We’re going to go more regularly if the rates begin to come down.
Some people find it difficult to distinguish between NMRC and the federal mortgage bank of Nigeria (FMBN). They often mistake FMBN for a secondary mortgage bank. Where do you draw the line between the two?
The simplest way to draw the line is our source of funding. Our source of funding is the capital market, while their source of funding is the provident, that is, the money that individuals contribute which is 2.5 percent of their income deducted from their salaries and sent to the bank. That means the cost to them is lower. That is the major difference. We depend solely on the market realities while they get almost ready-made money which is unaffected by rates volatility.
At a time NMRC was known for coming up with market initiatives one of which was the mortgage market information portal. Another was the mortgage markets system. We are not hearing about such initiatives any more. What has changed?
We didn’t discontinue. The mortgage market system, for instance, is still working. You heard about them then because we were just launching them. Today, it’s already working and working effectively.
The housing market information portal q1is a layer on that. The mortgage market system is meant to connect all the players in the market so that we have an insight into what everyone is doing and with that you can plan well.
The other market information portal is talking about how developers can get data so that they can begin to make informed investment decision. Those two are working but, in addition to them, we have been working on the other initiatives one of which is the national housing data.
People ask about Nigeria’s housing deficit. The deficit number we have today can just be a mere projection until we do a census. You can’t get it from CBN, I mean accurate one, you can only do approximation.
When you do a national census, you get information on the population of the people in Nigeria during the national census which also counts houses.
We’ve signed an MOU with the Nigeria Bureau of Statistics (NBS); we have also signed with National Population Commission. We’re bringing together all these players into that national housing data committee that the Minister might setup very soon. There was a meeting we had with the minister of housing, about six months ago, where we led that coalition to his office and that is one thing we’re doing.
We want to have credible data. What has been happening is that, across Africa, we’ll be working with the Centre for Affordable Housing Finance in South Africa. They work with every country and they’ve come up with 117 data elements that you need on housing so that you can make comparative analysis amongst African states.
South Africa has adopted a lot of contracts that we have also adopted. We have looked around to source for those 117 data elements; some come from CBN, FMBN, NMRC, and NPC. We have all agreed that we will be producing those information. Housing market information portal is to host it. So when all that data come, we provide information and then there will be analysis and information to be shared.
We’re also thinking of other things we can do and we are looking at ways to make transfer of titles easier and what to do to reduce the cost. Recently, we finished the review of that law that deals with opacity. It’s called Mortgage Administration Law. It will ensure that there is streamlined process of how to get titles. You know time is money, so the longer it takes to get titles, the costlier a project becomes.
We had a meeting and it wasn’t an NMRC thing. Although the meeting was held in the NMRC office, the Central Bank spearheaded it. The federal mortgage bank was here, all the banks were here. We agreed to dissect the law again. The initial one was done by NMRC about 10 years ago, we decided that it needed a review.
We are working on other things like education because we believe financial education is very important; women in business or women in finance or women in real estate. We sponsor those things so that people are enlightened about mortgages. We sponsor initiatives which are more of empowerment.
Let me take you back to the primary mortgage banks. You said a while ago that some of them are not all that viable. Would you, therefore, subscribe to another round of recapitalization and consolidation for them?
Anything that improves efficiency is fine. Recapitalization is always a good idea but if we recapitalize an entity that is not doing much because interest rate is high, it doesn’t solve that problem
While I agree that they can do better, I think the biggest elephant in the room is still that macro economic issues. So let’s say a bank, maybe their share capital is 10 and you increase it to 20 and they are ready to do more, but if interest rate is still so high, they will still be handicapped.
Recapitalization is good but it should not stop there; we should have everything working well, because in some countries, you don’t even have more than five banks even in some big economies. Actually, you don’t need to have so many but the ones that you have, not only their capital but also the macro must be working in their favour so that everything will work together.
Recapitalization is good but can’t solve all the problems. That’s what I’m trying to say. You need to make sure that people have good disposable income so they can afford the houses and then they come for mortgages. So, the two must go hand in hand.
You are a public and private entity at the same time. Now, the problem we have today revolves mostly around macro-economy, especially high interest rate. If you were to advise government on how things can work better, what would you tell them?
All the challenges we have now are reflections of things that we have done wrongly over time but because people are feeling the pain, sometimes we’re just looking for quick fixes. I think for any country to move forward a few steps, you have to take you know to get things right and they are long, and it takes time.
A sound educational system is number one, that educational system, the universities must partner with the private sector so there is that symbol and advising on product. We need that so solid relationship between the public and private.
We need to have a strong manufacturing base, now almost everything we use is imported, you have to have a solid industrial base for you to actually prosper.
The normal thing is food, security, sound education, industry and then services. What we have done is we have gone to services without going to good education and the production aspect.
So we have all the banks, but if there’s nothing that is producing something that you need to serve, then there will be a lot of money chasing few things and then they becomes expensive. We have to have solid education and solid manufacturing base and promote culture of hard work that you don’t just don’t do little and make money.
A country like India has got it right because they spent a lot of time building technical institutions. Now you see most of them are now even going to America, all the CEOs of major technology companies are from India and they went to school in India.
Having come this far, where do expect this company to be in the next three to five years?
We expect to have done significantly more in terms of the value and the number of refinancing. As I said earlier, we are working on a few things that will help us achieve blended rates. By the time we get the funding, it will significantly reduce the cost that we are going to be passing on to the banks.
We’re also partnering with other sister organizations like Family Homes Funds (FHF). We are also going to expand on that partnership. What Nigerians want are houses. The houses could be coming from FMBN partnering with NMRC or partnering with FHF. So, you see, there are a lot of collaborations even amongst ourselves because we all want to deliver.
We expect to see a lot more innovations going forward.
