Mortgage loan applicants must provide 20% equity - NMRC

As part of its criteria for mortgage refinancing, the Nigerian Mortgage Refinance Company has set 20 per cent as the minimum equity contribution by applicants for loans.

The Chief Executive Officer, NMRC, Mr. Sonnie Ayere, stated this at the uniform underwriting standards workshop organised by the company in Lagos last week.

“Right now, we say 20 per cent for a normal salary worker, and for payment, people have to pay through deduction at source for the public sector and even possibly for the private sector. These are the kind of things we are putting in place as conditions under which we can begin to give out mortgage loans and secure the requisite long-term financing,” he said.

According to Ayere, the criteria will be the guidelines that a mortgage lender will have to meet to be eligible for loan, adding that for a property to be eligible for financing, it must have tenure of 20 years.

He said, “We are saying it should be around 20 years. To put it better from the date of origination, 40 to 45 years minimum will be the duration of the lease.

“That becomes the standard; for mortgage banks, they know anything less than that they can do finance but they will not be able to refinance it from the NMRC.”

The NMRC is a private sector driven company with the purpose of developing the primary and secondary mortgage markets by raising long-term funds from the capital markets as well as foreign markets, and provide accessible and affordable housing in the country.

The company was established in 2013 as the Nigeria Mortgage Refinance Company Plc by the Federal Government in response to the housing needs of the masses.

The NMRC has the mandate of encouraging financial institutions to increase their mortgage lending by providing them with long-term funds; increase the maturity structure of mortgage loans and assist to reduce mortgage rates.

It is also expected to increase the efficiency of mortgage lending by facilitating and standardising mortgage lending practices of financial institutions.

Ayere said over the last six months, the management of the NMRC had been working on an enabling environment for its take-off, and should be able to hit the target of providing the first finance by the end of the year or the first quarter of next year.

“What we are trying to do is to make sure that when we hit the market, we will have something sustainable. It is not just about finance, there are other issues such as foreclosure, which is also important,” he said.

The President, Mortgage Banking Association of Nigeria and NMRC board member, Mr. Femi Johnson, said the company would refinance loans that had already been originated by mortgage lenders.

He said, “Now, these loans ought to have been seasoned for six months, meaning that as a mortgage lender, if I grant you a loan, before the NMRC refinances it, you must have repaid for six months in six instalments for them to be sure you are a good borrower.

“So, if we say the NMRC is going to start by the end of the year, means that the loan that will be refinanced must have been granted now. So, technically, the effect of the NMRC is starting now once we complete the underwriting standards. Underwriting will begin, loans will be granted now in preparation for refinancing six months after.”

A statement issued at the end of the workshop stated that the forum was aimed at providing support for the housing finance sector in the country by developing criteria for acceptable mortgage loans for refinancing by the NMRC, including payment performance, financial terms, legal contract terms, mortgage loan product designs, mortgage loan underwriting criteria, and the contents of mortgage loan documents.

The NMRC is expected to engage with stakeholders on the key components of the model mortgage law, which is expected to eliminate the current challenges in titling, land administration, mortgage registration and enforcement, thereby improving standardisation.

According to Ayere, about 21 states have already indicated interest in working with the NMRC and attended the workshop.

He said the organisation would also look at other consumer-friendly approaches to mortgage lending such as insurance products.

“This is so that people can take insurance against their jobs and death so that in case someone dies, the insurance company can pay off the mortgage and give the house to the beneficiary; we are looking at ways to make it consumer-friendly, while trying to bring the cost to an economically viable level,” he said.

The Advisory Partner to the NMRC and the Principal Partner, G. Elias and Co., Dr. Gbolahan Elias, said the mortgage company was also working on the foreclosure law, adding that it was the aim of the company to have some uniformity in mortgage practice nationwide.

“If we are going to have a pool of mortgages, there has to be some guidelines, otherwise it becomes difficult to say what the rules are. We are at the process of drafting a model law to be drafted by the states,” he said.

Elias said one of the issues the uniform law hoped to achieve was the land law, which he said was a major challenge to mortgage lending.

He said, “Land law is a state matter not a federal matter; so, to achieve uniformity, you cannot change the law at the federal level.

“The Federal Government cannot impose laws on the states as regards this because each state in principle can have its own laws relating to land.

“So, the approach has to be to offer an incentive for all of the states to say we will not take mortgages on land in the states unless the states fulfil certain minimum criteria such as the cost and amount of time it takes to get a mortgage and to enforce it.

“Based on this, we are not enforcing a single law nationwide but we are going to suggest a set of minimum standards that a state must have for the residents to take advantage of what the NMRC has to offer. There’s a challenge of the amount of time it takes to process a mortgage in a state; the NMRC is hoping to address this, it should not take too long.

“If we have a situation where a mortgage application has to go through 27 desks for signature, for instance, it won’t be done in less than six weeks. The overall time spent on stamp duty, governors’ consent and all the other processes has to be reduced.”

On what the role of the Federal Mortgage Bank of Nigeria would be after the take-off of the NMRC, Ayere said there would no overlapping of duties from the two institutions.

He said, “The FMBN is being restructured to look at other parts of the market; they are coming up with things like rent-to-own product and the lower end of the market. I think the market for housing in Nigeria can accommodate two or more institutions of this nature; it is so big that once we get the right blend, the NMRC may not be able to cover the market.

“Majority of the market falls under affordable housing; so, there is no competition; we are all trying to make the market work.”

Source: Punch Newspaper