MRC, long overdue

The desire of many Nigerians to become home owners would no longer be a dream as the Federal Government has concluded plans to set up a Mortgage Refinance Corporation (MRC), with an initial N5 billion in capitalisation and a further $250million in debt financing.

The MRC, which is expected to address the liquidity problems that have long plagued Nigeria’s mortgage industry, is scheduled to take off in the third quarter of 2013.

While it is estimated that there is a housing deficit of 17 million units in the country, there are only 20,000 active mortgages for a population of 167 million. The MRC is to help address this anomaly by expanding the secondary mortgage market, allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders and mortgages in the market.

Ngozi Okonjo- Iweala, Nigeria’s Finance and Co-coordinating Minister for the Economy, says she anticipates that the MRC will stimulate the secondary market for Mortgages. The modest goal is to grow the active mortgages in Nigeria, from 20,000 to 200,000 in 5 years.

The MRC would help push down the interest rates for mortgages in Nigeria, from 20 percent currently, to 13 – 14 percent, thus making mortgages more affordable for prospective homebuyers.

The MRC will be backed by the World Bank with concessionary loans, as well as select private sector players. In the future, the new corporation is expected to access the capital markets for funding.

We commend this new policy initiative from the finance ministry and CBN, which has the potential to lift millions of Nigerians out of poverty, stimulate economic activity and boost other industries, from cement manufacturing to financial and legal services.

The objective of the Mortgage Refinance Company (MRC) according to the CBN framework “shall be to support mortgage originators such as Primary Mortgage Banks (PMBs) and Deposit Money Banks (DMBs) to increase mortgage lending by refinancing their mortgage loan portfolios. The MRC shall act as an intermediary between originators of mortgage loans and capital market investors who typically are looking for long-dated high quality securities.

The MRC model has been used in a number of countries to help stimulate the housing market, deepen home ownership and stimulate gross domestic product (GDP) growth. In the United States, the two housing-finance giants Fannie Mae and Freddie Mac, have helped to expand home ownership in the US to historical highs, as well as engender wealth creation and jobs.Fannie Mae and Freddie Mac are estimated to own or have guaranteed about 60 percent of the U.S.’s $12 trillion mortgage market in 2010.

To safeguard the MRC from financial distress in the future the establishing framework stipulates that “at no time, except in the first two years of the MRC’s operations, shall its permissible investments exceed 40.0 per cent of its total assets, unless otherwise stipulated by the Bank in considering the MRC’s liquidity needs and its borrowers’ demands for loanable funds.”

The MRC is an institution which is long overdue in Nigeria, and we urge the CBN, Finance ministry and other relevant institutions to help facilitate the seamless startup of the corporation.