The mortgage system in a struggling economy

Today, Nigeria is celebrating her 57th anniversary as a sovereign nation which is time long enough for a country so richly endowed with both human and natural resources to have got most of its arts together for building a strong and viable economy that supports growth and development.

Though the country has seen growth in some areas of its existence, in some others, there is virtually nothing to talk about. This is the area where the mortgage system in the country belongs, making the country as a whole a case of a cup half full and half empty.

Unlike the advanced economies of the world where the mortgage industry makes significant contribution to economic development, in Nigeria, mortgage finance as a percentage of Gross Domestic Product (GDP) till date is as low as 0.5 percent which is several steps behind other emerging markets including Mexico, Malaysia and South Africa where mortgage contributions to GDP are as high 10 percent, 25 percent and 29 percent respectively.

Mortgage, where the environment is enabling, has all the potential to stimulate a struggling economy as it is in Nigeria. For that to happen in Nigeria, all the obstacles to the growth of the industry have to be tackled.

Industry operators have identified some of these obstacles among which are the relative ‘newness’; lack of understanding of the dynamics and operational models of the sector by many Nigerians, and poor appreciation of the need and the ultimate benefit of keeping money in a mortgage bank .

Government, they say, can benefit a lot from a flourishing mortgage banking sector as it will help in regulating the economy in the desired direction. Presently, the Federal Government is talking about diversification of the economy to steer it away from the current challenges, but attention doesn’t seem to be paid in the direction of the mortgage sector.

If government really wants to stimulate the economy, one of the ways of bringing mortgage into it is by reducing the interest rate on mortgage loans. With this, all things being equal, more people will embrace mortgage loans for buying houses, leading to increased activities in the construction sector.

Because of the identified obstacles, many primary mortgage banks (PMBs) are going through very difficult times, such that some are still unable to meet up with the needed capital requirements in the sector.

“If government pays a closer attention to the PMBs by removing some of the obstacles that they have such as the drawbacks of the Land Use Act of 1978 which essentially vests land ownership in the hands of the state governors; the right to easily foreclose on delinquent borrowers, ease of creating a legal mortgage and perfecting titles and the ease of falling back on their collateral to recover bad loan etc, this sector will surely improve tremendously”, a mortgage operator told BusinessDay recently.

The operator who did not want to be named, insisted that until all these issues are resolved in a way that encourages the provider of capital, in this case the mortgage bank, to lend, the sector will not grow as desired and he hopes that when these obstacles are removed, the supplier of mortgage will allocate more funds towards the provision of home loans while home buyers will better appreciate the implication of prompt interest and capital repayments as well as ensure discipline on the part of the people.

Okika Ekwem, a US-based realtor, affirms that the capital base of the PMBs is inadequate. He however, dismissed the idea of a fixed capital base for mortgage institutions. “Saying that a mortgage institution should have a fixed base of, say N10 billion, is wrong because that amount is too meager; even N100 billion is also meager given the kind of projects they are to finance. The federal government needs to come in, look at what is happening in other civilized world and copy. These days, copying is no longer an act of deception but actually something that is done even in the civilised world”, he said.

In the civilised world, according to him, there is secondary market for real estate financing where commercial banks or individual brokerage banks lend money to people and thereafter sell the securitized certificate to the secondary market and come back again to lend to individuals.

Experts say that mortgage sector growth is possible if the Federal Mortgage Bank of Nigeria (FMBN) plays the role of a regulator while the federal government, through the CBN, should empower the PMBs more.

Some argue that the country needs more PMBs established and are proposing about 40 in each state of the federation. Meckson Innocent Okoro, an estate manager, explains this is to discourage the concentration of these institutions only in urban centres.

“When this is done, access to housing finance will be increased; the PMBs must be positioned to champion the whole issue of affordable or social housing for the low income earners in the country. Anything the country wants to do without a functional mortgage system that can guarantee homeownership for a good number of people will not succeed”, he posited, adding, “we are talking about housing which is capital intensive and so must have capable institutions to finance it”.

Chuka Uroko