‘We are involved in many initiatives that will help Nigerians get decent accommodation’

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.