Mortgage refinance initiative to fill lending vacuum in real estate

The new Mortgage Refinance Company (MRC) being promoted by the Federal Government with $300 million seed capital from the World Bank will be filling the lending vacuum in the real estate sector, analysts have said.

Banks, since the onset of the global financial crisis, have been very cautious and choosy in lending to real estate sector, because of the sector’s market challenges and more for its long gestation period.

The analysts hope that a proper implementation of MRC, which will be private sector-led, will deliver 75,000 homes per annum and create 300,000 direct jobs.

Anthony Owuye, CEO, Personal Trust Savings and Loans (mortgage banker), explained to BusinessDay in an interview that MRC, which is a secondary market institution inter-mediating between long-term deposits and short-term funds, would be providing long-term funds to mortgage lenders.

“It will issue long-term bonds in the Nigerian financial market as efficiently as possible, and channel the proceeds to member institutions at a competitive rate,” Owuye informed.

He hopes that when the company commences operations by the last quarter of this year it will bring to end, or reduce to the barest minimum, the huddles posed to mortgage lending to real estate.

“For us at the primary mortgage banks (PMBs), it is a new dawn, because this is going to revolutionise mortgage banking operations; the new refinancing company acting as a secondary mortgage institution will buy off mortgages originated by the PMBs,” he said.

President Goodluck Jonathan had explained in Lagos that the decision to establish MRC was an outcome of a retreat organised by the Federal Government for all players in the housing sector to find solutions to the sector’s problems.

The president, who spoke at the dedication of the first five million square metres of land reclaimed from the sea for the Eko Atlantic City project, explained further that the initiative was aimed to boost the mortgage industry in the country and also clear the huddles posed to homeownership by high interest rate on mortgage loans.

Sunnie Ayere, CEO, Dunn Loren Merrifield, and task manager, Federal Ministry of Finance, World Bank and International Finance Corporation (IFC), also gave insights into the operations of MRC at a forum in Lagos.

Ayere said the composition of the company’s shareholders include the Federal Government; International Other Finance Institutions (IFOs) like IFC, Shelter Afrique, etc; Nigerian banks, PMBs, and equity investors.

According to him, this initiative has worked and still working in many countries of the world, pointing out that here in Africa, the Egyptian Mortgage Refinance Company (EMRC) was incorporated in 2006 with a paid up capital of EGP 241 million, about $35 million.

The aim, he explained, was to provide long-term finance to primary mortgage lenders and issuing bonds in the capital markets. “Its shareholding structure shows a strong leaning on the private sector, which contributed 60 percent equity, the public sector 40 percent, while IFC contributed 7.9 percent,” he said.

Similarly in Jordan, Middle East, he said, the Jordan Mortgage Refinance Company was established in 1996, with a paid up capital of JD5 million, about $7 million, adding that, like the case of Nigeria, the objectives were to develop and improve the housing finance market, promote and develop the capital market by issuing corporate bonds in the local capital market.

Emeka Eleh, national president, Nigerian Institution of Estate Surveyors and Valuers (NIESV), commended this initiative, saying that “his institution supports this initiative, which has worked in Kenya, America, etc,” noting that in all these countries, there was some level of government intervention just like in the UK where government pumped 15 billion pounds into the housing sector as a form of intervention.

Eleh, who spoke in interview with our correspondent, however, expressed reservations, explaining that “he is worried with what happens from day one of the implementation of the company.

“I am of the opinion that there must be government intervention to jump-start the process. Our institution supports anything that will lower interest rate. We believe that a mortgage refinance company will work over time, but we call for intervention now to enable the interest rate to come down to a level where more players can enter,” he advised.