Mortgage Industry Standardisation buoys delivery of Affordable Homes to Nigerians
Nigeria’s burgeoning population, estimated at over 180 million at the end of 2017 and the attendant increasing urbanization across the length and breadth of the country, remain two major and compelling factors driving the need for the delivery of affordable homes to Nigerian households; particularly the low and middle income earners. The United Nations recently (2015) put Nigeria’s annual population growth rate and annual urban growth rate at 2.8 percent and 4.7 percent respectively, and had in a 2013 projection (World Population Prospects Report, 2013) estimated that the country’s population could become more than 400 million strong by 2050; overtaking that of the United States. This will definitely have serious consequences for housing infrastructure.
Figures released by the National Bureau of Statistics (NBS), which corroborated the World Bank’s estimate (2014), put the country’s housing deficit at 17 million units. Whilst policies geared towards bridging the housing gap have been developed and implemented, particularly by mortgage industry operators (primary mortgage lenders, mortgage off-takers, mortgagors, secondary mortgage refinancing specialists, Central Bank of Nigeria and others), challenges relating to incoherent industry practices and conflicting procedures adopted by different operators had slowed down the pace of progress within the sector.
Realizing the importance of standardisation and emplacement of seamless operational and regulatory framework to the realization of the overall industry goal of affordable home ownership, major stakeholders in the industry have recently put in place institutional and regulatory reforms aimed at simplifying processes, unifying procedures, promoting efficiency and mitigating financing risks for mortgage transactions in Nigeria.
It is the aim of this piece to espouse some of the major innovative mechanisms and strategic alliances currently enhancing mortgage transactions, with the potential to substantially scale up the degree of affordable homes ownership in Nigeria.
UNIFORM UNDERWRITING STANDARDS
The Uniform Underwriting Standards (UUS) is an innovative solution, developed and promoted within the mortgage industry since November 2014, by the Nigeria Mortgage Refinance Company (NMRC). Significantly, application of the UUS has recently been extended to the informal sector following the launch, on February 14, 2018, of the “Uniform Mortgage Underwriting Standards for the Informal Sector”; thereby promoting mortgage financial inclusion among players within the micro, small and medium-sized enterprises (MSMEs) space.
Prior to the development of the UUS, the industry was characterized by multiple rates with different terms and conditions offered from one mortgage lender to another. The UUS introduced eligibility criteria, applicable uniformly across the mortgage market, as the industry standards by which mortgage loans underwritten by lenders are qualified for NMRC refinancing facility.
Application of the UUS has produced positive results. The traditional short tenors of mortgage loans (sometimes as short as 2 years and usually not exceeding 5 years), have been elongated up to 20 years for loans that are compliant with the NMRC Eligibility Criteria. Also, mortgage repayment has been restructured and made predictable while interest rate on mortgages has become uniform industry-wide, and fixed for the whole tenor.
In addition to the foregoing, enforcement of compliance with the Pension Reform Act 2014 and the National Pension Commission (PenCom)’s “Guidelines on Withdrawals from Retirement Savings Account (RSA) towards Equity Contribution for Payment of Residential Mortgage” is now being enforced, so as to enhance employees’ chances of utilizing parts of the funds in their RSAs towards meeting the respective equity contributions; statutorily required for pre-qualifying their applications for primary mortgage financing or secondary mortgage refinancing.
Essentially, mortgage lending standards and procedures have been streamlined and well defined with the instrumentality of the UUS, such that the operational and regulatory environments are substantially de-risked through ascertainment of quality collateral, good property title, proper registration and enforcement of legal mortgages, and seamless collection processes.
MORTGAGE MARKET MANAGEMENT SYSTEM
The Mortgage Market System (“MMS”), which was launched by the NMRC in February 2017, is another innovative solution helping to further standardize, simplify, and share valuable data and information on mortgage transactions across the entire housing value chain.
The MMS was introduced as an end-to-end solution-enabled mortgage market technology, for the purpose of enhancing efficiency and transparency of operations across the industry from mortgage origination to refinancing.
In specific, the MMS is created to:
Enhance integration of the entire housing sector value chain, from construction finance to primary mortgage origination and through to secondary mortgage refinancing;
Enhance cost and operational efficiency and effectiveness throughout the housing market by streamlining complex procedures and removing duplication of efforts in data capture and analyses;
Improve process documentation by further improving on turnaround time for mortgage lending transactions;
Futuristically drive mortgage transactions and enable the securitization of mortgages in the country;
Potentially act as a credible mortgage asset registry for the Nigerian market;
Optimize the efficiency of Bank Verification Number (BVN) and Mortgage Identification Number (MIN) assigned to each mortgage loan for ease of tracking performance and credit status;
Mitigate the incidence of fraud in mortgage origination and administration processes;
Provide useful data for business analytics which will help in policy making and credit penetration strategies;
Improve the business environment, contribute to market transparency and boost investors’ confidence; and Enable efficient collaboration between NMRC and participating institutions.
REMARKS
Standardisation of the processes across the mortgage sector value chain is currently boosting market confidence and enhancing stakeholder participation through improved access to housing finance, mortgage savings and payments, and effective process monitoring.
Whilst the number of mortgages, successfully originated through primary mortgage lenders as well as those refinanced by the NMRC, has increased substantially in recent times, more strategic partnerships are also being formed on a continuous basis among mortgage market operators, institutions, and different levels of government to boost home ownership in the country.
It is expected that the gains of the continuous application of the various innovative solutions in the mortgage market will engender the growth of the industry and boost its contribution to economic development. Currently, Nigeria’s mortgage finance as a share of Gross Domestic Product (GDP) is abysmally low at 0.6 percent. This compares unfavorably to available figures for other jurisdictions where mortgage is an important driver of economic growth (such as 2 percent in Botswana, 2 percent in Ghana, 31 percent in South Africa, 32 percent in Malaysia, 77 percent in the United States, 80 percent in the United Kingdom, and 50 percent across Europe).
As the simplification and standardisation of industry practices continue to make the mortgage sector more attractive to financiers, there are hopes that many more Nigerians would leverage on this to own their homes, and the contribution of the sector to the overall GDP could hit about 10 percent by the year 2020.
Mortgage, Finance & Development is done in association with Nigeria Mortgage Refinance Company (NMRC)