Some level of confusion usually arises when a mortgage loan seeker where he can get ‘cheap’ mortgage. A lot of the time, some loan seekers do not even know what functions primary mortgage banks (PMBs) play as different from those of secondary mortgage institutions.
One of the frequently asked questions by mortgage loan seekers in Nigeria is what differences and similarities exist between the Federal Mortgage Bank of Nigeria (FMBN) and the Nigerian Mortgage Refinance Company (NMRC) as secondary mortgage institutions and housing loan providers.
By the first quarter of 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.
In their confusion, loan seekers raise concerns on how the two institution can work side by side, noting that there are no reasons for people to raise concerns over the existence of NMRC side by side with FMBN, because each is no threat to the other.
The major difference between them is that whereas government appoints the FMBN board and largely guides its operations, the NMRC appoints 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.
NMRC 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, the refinance company is taking the shine off FMBN and this is understandable given is 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.
The company enhances standardization of mortgage origination and administration processes within the market through the Uniform Underwriting Standards (UUS), drives reforms to the enabling environment for mortgage lending and title perfection through advocacy of a draft Model Mortgage and Foreclosure Law. It also accelerates the creation of new mortgage products, promotes affordable home ownership for Nigerians and grows the contribution of mortgage sector to GDP in Nigeria.
In July 2015, the company successfully issued a 15-year N8 billion Series 1 Bond – the first mortgage refinance facility in Africa to achieve this feat. This was done under its N140 billion medium term Note Programme, backed by an unconditional federal government guarantee which it has deployed to the refinancing of the mortgage portfolio of its member banks.