Mr. Mac-Yoroki Ebilate is the Mortgage Banking Association of Nigeria (MBAN) President and Managing Director of CityCode Mortgage Bank Limited. He spoke with CHINEDUM UWAEGBULAM on the need for proactive measures to enhance housing finance; reform the Land Use Act and upward review in the National Housing Fund contribution of 2.5 percent of basic salaries.

There has been a misconception about the strength and stability of the Nigerian Mortgage Sector, as the contribution of mortgage finance to GDP is about one percent. What is the current status of the mortgage market in Nigeria such as the percentage of housing units financed?

Let me emphasize that the robustness of a mortgage finance system within any country extends beyond mere transaction volume or the size of financial institutions’ balance sheets. The accurate measure of a mortgage finance system’s strength lies in its resilience to internal and external systemic shocks and its consistent ability to provide long-term financing with an average tenor of 20 years.

This distinction is vital because mortgage financing differs significantly from commercial banking. The subprime mortgage crisis in the USA in 2007, which contributed to the global financial crisis in 2007-2008, serves as a stark reminder that, in the realm of mortgages, sheer volume does not equate to strength.

Frankly, mortgage finance has not made a significant contribution to the Gross Domestic Product (GDP) due to several factors, which are fundamental in nature including legal, regulatory, monetary, political, and social.

A major one is due to cultural issues in Nigeria; most of the residential properties were purchased on a cash basis among those with the wherewithal, thus adding to the constraints impeding the creation of mortgage loans and development of the mortgage banking sub-sector.

Aside, an average Nigerian prefers to build on an incremental basis rather than taking a mortgage in addition to sourcing funds from non-conventional sources, which are not captured in determining the contribution of mortgage to GDP.

Unlike in other climes, the mortgage banks still lend at high-interest rates, which negates the quest for a virile mortgage sector. What has caused this? Is it possible to streamline the system to offer single-digit interest rates, spread over 20 to 25 years? How can this be done?
There is a big difference between mortgage loans and commercial loans; mortgage loans are usually product-based, which distinguishes them from other loans and makes them reasonably cheap in terms of rates.  For instance, we have National Housing Fund (NHF) loans and Rent-to-Own, which are products-based mortgages at the rate of 6 percent and 9 percent respectively through the Federal Mortgage Bank of Nigeria (FMBN).

Furthermore, the Help-to-Own program offered by Family Homes Fund Limited (FHFL) features an incremental interest rate ranging from 3.5 percent to a maximum of approximately 8.5 percent as a product-based mortgage option. Additionally, products from the Nigerian Mortgage Refinance Company, while having double-digit rates, have still managed to provide competitive rates for those who may not prefer product-based mortgages. It’s worth noting that the recent policy implemented by the Federal Government through the National Pension Commission (PENCOM), allowing individuals to access 25 percent of their retirement savings for mortgage equity contributions, has had a positive impact on mortgage statistics.

This policy change has already generated momentum within the mortgage sub-sector, which is expected to drive both the interest rate and volume of mortgages. We are confident that in the near future, mortgage loan rates will trend lower than their current levels.

The association has consistently engaged in constructive advocacy with the Central Bank of Nigeria (CBN), the statutory regulatory agency for the mortgage banking sub-sector, as well as other stakeholders. We have proposed a combination of short, medium, and long-term measures to address the issue of high-interest rates in the mortgage market.

In this regard, through our advocacy efforts, we have achieved a significant milestone: the approval of the CBN for a groundbreaking Mortgage Interest Draw-Back Programme (MIDP) as an initiative to reduce lending interest rates.

We hope the Federal Government will continue to act proactively in taking measures that will see more products-based mortgages that will ensure housing finance is no longer done through short-term facility and commercial loans, particularly with the influence and experience of the current housing minister.

The association proposed an increase in the monthly NHF contribution to 2.5 percent of the total salaries of contributors as against the current 2.5 percent of the basic salary. Does your association still hold that opinion? How do we reform the scheme?
In light of the burgeoning housing needs, the absolute truth is that the contribution of 2.5 percent of basic salaries to the scheme would only amount to a meager pool of funds, which may not make a significant impact in addressing the housing finance needs of Nigerians.

Besides, considering the economic realities in the wake of the new developments, even 2.5 percent of total salaries would never be adequate and as such there is a critical need for upward review of the amount contributed to the scheme.

Indeed, amending contributions to the NHF Scheme would require a constitutional amendment to the NHF Scheme Act, a process that can be time-consuming. Nevertheless, there have been notable improvements in the operations of the NHF Scheme in recent times. These improvements have led to shorter turn-around times for NHF loans, increased transparency in the scheme, and a higher volume of transactions being generated.

It’s true that institutional NHF contributors like banks and insurance companies have not met their required investments in the scheme as mandated by the NHF Act. To address this issue, rather than immediately resorting to penalties and sanctions, a more constructive approach could be taken. Here are some suggestions:

1. Engagement and Dialogue: The Federal Mortgage Bank of Nigeria (FMBN) and other stakeholders in the housing finance sub-sector should engage in effective and constructive dialogue with the statutory regulatory agencies for the affected sub-sectors, such as the Central Bank of Nigeria (CBN), the Nigeria Deposit Insurance Corporation (NDIC), and the National Insurance Commission (NAICOM). Through these discussions, mutual solutions and agreements can be reached to ensure compliance with NHF contributions.
2. Incentives: Consider offering incentives to encourage compliance rather than penalties. For instance, institutions that meet or exceed their required NHF contributions could be recognized or rewarded in some way. This positive reinforcement can motivate compliance.
3. Awareness and Education: Enhance awareness and education efforts regarding the importance and benefits of NHF contributions. Banks and insurance companies may not fully understand the significance of their contributions to the scheme, so providing clear information on how these contributions contribute to housing development could encourage compliance.
4. Voluntary Agreements: Encourage voluntary agreements between financial institutions and the FMBN to gradually increase their NHF contributions over time, making it easier for them to meet the required percentages without causing undue financial strain.
5. Transparency and Accountability: Continue to emphasize the importance of transparency and accountability within the NHF Scheme. Highlight the positive impact achieved through recent improvements in the scheme’s transparency and accountability, which can further incentivize contributions.
6. Policy Advocacy: Advocate for policy changes that may facilitate NHF contributions, such as adjustments to the interest rates or terms associated with these contributions.

Ultimately, the goal should be to foster a collaborative environment in which all stakeholders work together to ensure the sustainability and effectiveness of the NHF Scheme, with a focus on transparency, accountability, and mutual understanding.

Coupled with the above, a review of the NHF Act similar to the revised Pension Act of 2004 would re-ignite the scheme as the NHF Scheme holds significant potential for long-term pooled funds for mortgages in Nigeria. There also exists great potential for the pooling of funds for mortgage financing through mandatory contributions from the workforce; and in light of the beneficial effects that the reform had on the Pension scheme; since the enactment of the Pension Reform Act of 2004, triggered strong growth in the contributory pension scheme estimated to be N16.76 trillion as at December 31, 2022, which has fatally eclipsed the total contribution to the NHF scheme in its over 30 years of existence. The Federal Government too would do well by making its required statutory contributions to the scheme and enforcing the other institutional contributors to do the same.

The National Assembly refused to make affirmative legislation on the Amendment to the Land Use Act 1978. What does this portend to the real estate sector, especially land acquisition for housing development? How has this issue affected the mortgage system?
A critical examination of the state of housing and housing finance in Nigeria revealed that apart from macroeconomic issues, two critical areas that are also undermining the development of mortgage financing and real estate sector alike are: the legal framework and land administration system. As a matter of fact, these two issues have their roots deeply in the Land Use Act (LUA) 1978 vis-à-vis land ownership in Nigeria.

The Act vests ownership of all land to the Executive Governor of each state, who has the right to allocate land through a leasehold system. The lease is generally for 99 years less than one day and the Right of Occupancy is legalized with a Certificate of Occupancy (CofO)) issued to the beneficiary of such land.

The LUA impedes progress in housing and housing finance through the absence of clear property and security rights. The absolute power of revocation and the need for mandatory governor’s consent, combined to constitute delays in the perfection of mortgages.

Expunging the Land Use Act (LUA) from the Constitution of Nigeria and expediting the passage of housing-related bills at the National Assembly are essential steps that would significantly enhance the legal and regulatory environment for mortgage finance and improve the performance of the real estate sector.

The Land Use Act (LUA) has posed challenges to mortgage finance, primarily by limiting land ownership and creating bottlenecks in securing titles to land, which are critical for mortgage transactions. To address this issue and enhance the efficiency of land transactions, there’s a need for a Digital Depository and Clearing System. This system would eliminate the current bottlenecks and minimize human bias tendencies in the process of obtaining and transferring land titles, particularly in the context of mortgage transactions.

Regarding the Nigeria Mortgage Refinance Company (NMRC) Plc, the Mortgage Banking Association of Nigeria (MBAN) played a pivotal role in its advocacy and establishment. While no organization is without room for improvement, it’s generally believed that NMRC has fulfilled its intended purpose of providing liquidity support to mortgage lenders and promoting homeownership by refinancing mortgage loans. It has contributed to reducing the cost of mortgage finance and increasing access to mortgage loans for Nigerians, which has been beneficial to MBAN members and the real estate market.

As for the proposed Nigeria Mortgage Guarantee Company (NMGC), such an initiative would have a positive impact on the activities of MBAN members and the real estate market. A mortgage guarantee company provides additional security to lenders and borrowers by guaranteeing mortgage loans. This can result in lower interest rates for borrowers, reduced down payment requirements, and increased access to mortgage financing. It would further enhance the confidence of lenders in extending mortgages, stimulate demand for housing, and foster the growth of the real estate sector in Nigeria.

In summary, expunging the LUA, advancing housing-related bills, and establishing institutions like the NMGC can collectively strengthen the legal and regulatory framework for mortgage finance, making it more accessible and affordable for Nigerians while bolstering the real estate sector’s growth.

The Nigeria Mortgage Guarantee Company (NMGC) is expected to further deepen and broaden the mortgage market through increased access to mortgage finance and sharing of credit risks with mortgage lenders. Specifically, it is to support mortgage originators such as Primary Mortgage Banks (PMBs) and Commercial Banks (CBs) to increase their portfolios of mortgage lending.

It would also facilitate increased access to housing finance by providing an enhancement to the requirement for equity contribution that would otherwise disqualify mortgagors from having access to mortgages as required by the Uniform Mortgage Underwriting Standards approved by stakeholders.