How FMBN is driving mortgage penetration and affordable housing

When the Federal Mortgage Bank of Nigeria (FMBN) was set up over three decades ago, the aim was for it to meet the housing needs of all Nigerian citizens. Initially, the bank was given the responsibility of monitoring and regulating the activities of mortgage institutions in the country. Due to a number of factors ranging from undercapitalization to lack of appropriate legal frameworks and deficient corporate governance, the bank had been underperforming.  But in the last couple of years, with a new management in place, there has been a change in its narratives, writes CHIKWENDU EZEALA

Nigeria, Africa’s largest economy and, indeed, the continent’s most populous nation, has the most challenging housing situation that seems to have defied solutions. The reason for this is handy: mortgage penetration is low and houses are not affordable for a good number of citizens.

Low mortgage penetration, which is said to be less than 1 percent, is reason for the country’s wide housing demand-supply gap estimated at 17 million units. Because of its huge requirements and the high cost, mortgage has been not only inaccessible, but also unaffordable to many people who need it.

It is said that Nigeria’s mortgage to Gross Domestic Product (GDP) is one of the lowest in the world. The country’s mortgage to GDP rate is about 0.5 percent which obviously lags South Africa’s 30 percent, the U.S rate at 60 percent and that of the UK at 70 percent.

However, incrementally and on consistent basis, ideas on improving access to housing, mortgage loan and homeownership in the country keep coming into play in the housing sector. A lot of efforts and commitments are being made by relevant stakeholders to raise mortgage penetration, increase access and ultimately make housing affordable, especially to the low and mid-income earners.

The Federal Mortgage Bank of Nigeria (FMBN), the country’s apex mortgage institution, which was set up about three decades ago as a major intervention in the housing sector, has been leading the way towards growing the country’s mortgage market and improving homeownership situation.

The last couple of years has witnessed what could be called a renaissance or a new dawn at FMBN as the new management of the bank is repositioning it for efficient mortgage products and services delivery. Evidently, the bank is driving mortgage penetration that will ultimately make housing affordable for ‘homeless’ Nigerians.

Aware that a major barrier to accessing mortgage is the equity contribution demanded by the lending institution, the new management of the bank led by Ahmed Dangiwa as Managing Director/Chief Executive Officer has largely resolved that by directing that loans not exceeding N5 million should attract zero percent equity, and reduced equity for loans up to N6 million to 15 million from 20 percent to 10 percent.

Between May 2015 and July 10, 2018, FMBN has issued 3,862 mortgages to Nigerians to acquire their own homes and has opened the National Housing Fund (NHF) to non-government employees. Cumulatively, the bank has created up to N80 billion mortgages since inception with over 20,000 housing stocks for the low and medium income earners.

The apex mortgage bank had, sometime ago, packaged and launched a product it called  ‘Informal Sector Co-operative Housing Scheme’ that was aimed at bringing that sector of the economy into the mortgage net to enable the operators own homes through mortgage loans.

The new product also known as ‘Affordable Homeownership Through Co-operative Financing’ was launched as part of FMBN’s efforts at bridging the housing demand-supply gap, and for giving the vast majority of  those in the informal sector the opportunity to have decent and affordable housing.

A new effort which the bank is making to drive housing affordability is the rent-to-own scheme The scheme is about to be completed and sent to the FMBN’s Board for approval. The scheme, according to the bank’s CEO, is almost like an owner occupier. “You are paying rent and, at the same time, owning the house. Most of the houses that are ready and are on ground can be used as testing ground for this scheme and it is good even for the informal sector”, Dangiwa noted.

Despite obvious constraints, including under-capitalisation, lack of appropriate legal frameworks to enforce compliance to the provisions of the Act setting up NHF, and deficient corporate governance system eroding the confidence of critical local and international stakeholders, FMBN has been quite active with its statutory functions, especially with the operations of NHF which it superintends.

In just 24 months, in pursuit of its mission anchored on ‘a mortgage finance change agenda,  the Dangiwa-led management of the bank has been able to implement some of its strategic priorities, including  the promotion of a sound corporate governance culture to ensure transparency and accountability, implementation of a robust enterprise-wide risk management framework, and an aggressive debt recovery drive.

The result of this pursuit has been quite phenomenal and enabling in the drive towards deeper mortgage penetration and more access to affordable housing. This can only be explained more by taking a critical look at the activities of the bank in the last 24 months during which the bank has been able to disburse N7.1 billion (about 10 per cent) of the cumulative N78.2 billion NHF mortgage loans.

Through this action, 993 Nigerians achieved their dream of becoming homeowners. Its Home Renovation Loan portfolio, which provides microfinance loans to improve housing condition also grew from N2.1 billion to N9.9 billion and from just 2,579 beneficiaries to 11,927.

Within this time too, the apex mortgage bank’s funded housing units rose from 20,435 to 25,850 while construction loan portfolio grew by N12.3 billion, a 16 percent rise from N79.2 billion to N91.6 billion. Overall, a total of N27.2 billion was disbursed within this period, representing 15 per cent of the aggregate loan portfolio of N179.7 billion.

One of FMBN’s downsides in the past years was the handling and operations of the NHF which denied many of the contributors access to their contributions. But that story has changed. The bank’s process for the refund of NHF contributions has improved significantly, especially in the response to retired workers’ concerns.  As a result of this, N7.8 billion, representing 42 percent of a cumulative N18.6 billion,  was refunded to 64,676 ex-contributors within this period.

Mortgage loans are given to subscribers to enable them buy, build or renovate existing houses. Consistent with that, 13,000 workers will be benefitting from the bank’s N13 billion Workers Home Renovation Loan Scheme. With a credit facility of N1 million, the bank will be able to reach that number of workers.

The bank realizes that there are civil servants that don’t need mortgage loan, but have their houses that need some upgrade. So, instead of excluding such workers, the bank has decided to give to them some micro-financing of N1 million to renovate their houses. 6,000 persons were given similar loan facility in 2016 when the bank disbursed over 6,000 home renovation loans and in 2017, it disbursed N6.5 billion.

These are quite encouraging and impactful outing, but there is only so much the bank can do with its low capital base.  As the federal mortgage bank expected to drive affordability in the nation’s housing sector, FMBN is operating on only N5 billion capital base.  Even with the N5 billion capital base, only N2.5 billion, representing 50 percent, is paid-up, making the planned N500 billion recapitalization of the bank not only instructive but also urgent.

The federal government is to provide the N500 billion over a five-year period with a view to making mortgage facilities easily available to Nigerians. The bank is still pursing the fund. It is yet to access the money but Dangiwa assures “talks are ongoing right now on the matter and we are optimistic that it will be approved sooner than later; the Council of Works and Housing is looking into the matter”.

Expectation is high that when the money is disbursed, it will increase liquidity in the mortgage system and also impact significantly on the housing sector. Experts in the mortgage industry expect the N100 billion annual fund intervention to make housing more affordable and, in the long run, encourage more Nigerians to take mortgage as a choice of raising fund for acquiring their homes.

“The plan will bring about positive impact on the mortgage industry”, Abiodun Akanbi, Head of Strategy at Infinity Trust Mortgage Bank, hopes, explaining that FMBN, through the NHF scheme, gives access to many Nigerians to obtain mortgage because of  its single digit rate; so if funded, the bank will have capacity to do more than it had been able to achieve.”

Yemi Stephens, Partner at Estate Links Limited, agrees, describing the N500 billion recapitalisationas a welcome development, stressing however, “it is like a drop in an ocean considering the huge housing deficit faced by the country which has the largest population in Africa”.