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THE ROLE OF FMBN IN THE DEVELOPMENT OF THE NIGERIAN MORTGAGE MARKET. A PAPER PRESENTED BY MR. GIMBA YA’U KUMO, MD/CE, FMBN AT THE 1 ST ASO HOUSING EXHIBITION & CONFERENCE 17 TH – 18 TH MARCH, 2011. INTRODUCTION.

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the role of fmbn in the development of the nigerian mortgage market
THE ROLE OF FMBN IN THE DEVELOPMENT OF THE NIGERIAN MORTGAGE MARKET

A PAPER

PRESENTED BY

MR. GIMBA YA’U KUMO, MD/CE, FMBN

AT THE

1ST ASO HOUSING EXHIBITION & CONFERENCE

17TH – 18TH MARCH, 2011

introduction
INTRODUCTION
  • Housing sector plays a critical role in the development of an economy. It not only affects the welfare of the citizens but also the performance of other sectors of the economy.
  • It is one of the three most important basic needs of man, the others being food and clothing.
  • Consequently, greater attention is being given by governments in the delivery of affordable housing to its citizenry, through

- Assistance in finance (via aid, subsidy or grants or combinations)

- Assistance in provision of infrastructure

  • The focus on housing finance has been very prominent, because housing provision requires huge capital outlay which is often beyond the capacity of the vulnerable medium/low income groups.
overview of housing in nigeria
OVERVIEW OF HOUSING IN NIGERIA
  • 720,000 housing units required yearly to meet MGD Goal on housing
  • Huge housing deficit estimated at 16m units
  • Estimated mortgage financing gap of over 56 trillion Naira
overview of housing in nigeria1
OVERVIEW OF HOUSING IN NIGERIA
  • Low homeownership rate of 25% compared to 70% in the USA, 63% in Brazil, 61% in Benin and 56% in South Africa
overview of housing in nigeria2
OVERVIEW OF HOUSING IN NIGERIA
  • Real estate sector in Nigeria contributes only about 0.5% of the total GDP, while in developing countries contribution is about 60% and between 30-40% in emerging economies
  • CHART 1: Real Estate sector contribution to GDP has stagnated over time
  • CHART 2: Real Estate sector growth has underperformed real growth and non-oil growth rates

Source: National Bureau of Statistics Nov 2010

CHART 1

CHART 2

fmbn mandate
FMBN MANDATE

FMBN was established to -

MANDATE 1:Encourage the emergence and growth of a viable secondary mortgage market to service the needs of housing delivery in Nigeria

MANDATE 2:Link the mortgage market to the capital market for sustainable long tenored funding and become a prominent capital market operator through issuance of debt and Mortgage Backed Securities (MBS)

MANDATE 3: Mobilize domestic and foreign funds into the housing finance subsector

MANDATE 4: Collect and manage the National Housing Fund (NHF) in accordance with the NHF law

performance on mandate
PERFORMANCE ON MANDATE
  • MANDATE 1:

Encourage the growth of a viable secondary mortgage market in Nigeria

- Successful refinancing of 9,525 mortgages valued at N26 billion created by Mortgage Loan Originators in the 1st tranche of the N100 billion Mortgage-Backed Bond programme to sell FG non-essential residential houses in the FCT in Year 2007

- The expected refinancing of about 6,533 outstanding mortgages valued at N14 billion in the 2nd tranche

performance on mandate1
PERFORMANCE ON MANDATE
  • MANDATE 2:

Link the Mortgage Market to the Capital Market

- The Federal Mortgage Bank of Nigeria is registered as an issuing house by the Securities and Exchange Commission (SEC)

- FMBN is recognized as an issuer of mortgage-backed instruments by the Federal Government of Nigeria

- FMBN’s mortgage-backed bond (MBB) continued to retain its ‘AAA’ rating

performance on mandate2
PERFORMANCE ON MANDATE
  • MANDATE 3:

Mobilize foreign and domestic funds

- FMBN is recognised as a first-choice investment conduit by foreign investors

- FMBN is exploring opportunities of issuing debt instruments in local and international capital markets in collaboration with international financial institutions

- Investor profile include global banks, international investment firms, conglomerates, foreign housing corporations, etc.

performance on mandate3
PERFORMANCE ON MANDATE

MANDATE 4:

Collect and manage the National Housing Fund (NHF)

- Significant increase in the number of registered participants which reflects growing confidence in the Scheme

+ 26 states now participating, from only 3 in Year 2002

+ all 24 banks participating, etc.

- Willingness to expand access channels to NHF mortgage originations e.g. PFAs, insurance companies, MFBs

- Steady increase in total annual collections and disbursements

(see next slides)

mandate 4 collect and manage the nhf nhf collections
MANDATE 4: Collect and manage the NHF:NHF Collections

NHF collections of N31.8b realised between Jan ’08 - Dec ’10

That is, 49% of cumulative collections from Jan ‘92 to Dec ‘10

slide14

OTHER ACHIEVEMENTS AS AT DEC 2010

      • NHF CONTRIBUTIONS REFUND:
        • Cumulative ofN942,662,263.88 refunded to 50,522 contributors
  • LOAN RECOVERY:
    • Total of N4,063,480,982 recovered on classified facilities in past 24 months
  • RESEARCH & DEVELOPMENT:
    • To bridge the knowledge gap on the housing situation, in 2010 FMBN’s Research & Documentation Unit carried out -
      • a survey on housing delivery in the FCT and
      • a market survey of building materials in all geopolitical zones of the country.
slide16

Consolidate on capital market activities

    • with issuance of subsequent tranches of its N100 billion bond to refinance sale of FG non-essential residential houses in FCT
    • To issue mortgage bonds based on FMBN’s financial strength and/or government guarantee

- To take advantage of investor appetite for bonds

  • Support legal and regulatory framework review
    • Amendment/replacement of unfriendly housing-related laws
    • Collaborating with National Assembly Committees on Housing
  • Consolidate NHF collection and funding operations
    • Increase in NHF collections by compliance of non-participating state & local governments, the organised private sector & the self-employed
    • Creation of 8 Zonal Offices for more effective coverage
    • Introducing NHF e-collection platform pilot scheme for FCT MDAs
slide17

Commencement of Commercial Lending Operations:

- using capital market resources applied as market-determined, risk-based priced loans

  • Expand mortgage financing to non-salaried informal sector

- whichcontributesas much as 65% of GNP, 90% of new jobs in the country, 80% of all non-agricultural employment and 60% of urban jobs [Vanguard, Sept 2008]

- Service delivery channels are trade groups, unions and housing cooperatives, microfinance institutions

  • Encourage formation of housing cooperatives

- To expand mortgage finance to target groups (teachers, nurses, mission groups (e.g. Catholic missions, organised Islamic organisations), trade groups, etc.

slide18

Attract foreign funding & investments

- Interests by American, Chinese, Korean & Saudi Arabian investors

- Strategic advantage as a FG-Sponsored entity for investors to channel investments into local economy

  • Introduction of Innovative Mortgage-related Products

- Mortgage and Title Insurance

      • to mitigate mortgage-credit risks for lenders
      • Increases/stimulates mortgage originations
      • Advantage of lower costs of mortgages (affordability) based on higher volumes

- Real Estate Investment Trusts (REITs)

    • Covered Bonds
    • Rental Market Development Products
    • Securitisation
slide20
1. INADEQUATE CAPITAL BASE:

Low capitalization in comparison with similar secondary mortgage institutions worldwide

- FMBN’s capital base is currently equivalent to US$16m compared to an average of US$158m held by similar secondary mortgage institutions

cost to register property administrative fees vary
Cost To Register Property – Administrative Fees Vary

2. HIGH COST AND DELAY IN MORTGAGE PERFECTION

WB: Doing Business Report

governor s consent bottleneck to registering property
Governor’s Consent – Bottleneck To Registering Property

2. HIGH COST AND DELAY IN MORTGAGE PERFECTION CONT…

WB: Doing Business Report

slide23

3. NEED TO REVIEW CBN PRUDENTIAL GUIDELINES FOR REAL ESTATE LENDING

  • To be more conducive to the long-term nature of mortgage lending

4. POOR INFORMATION STRUCTURES

  • Investment in information infrastructure to improve lenders’ capability to assess risk
    • Credit Bureaus
    • Real Estate Information Agencies
    • Property Valuation Companies

5. COMPLIANCE WITH THE NHF ACT

  • By banks, insurance companies and organisedlabour

- only 3.5m out of 50m workers are registered

- employers not remitting deductions to FMBN or not deducting at all

the way forward
THE WAY FORWARD…

FMBN commends Aso Savings & Loans Plc for the initiative to organise a forum for stakeholders to showcase products and services

FMBN appeals to stakeholders in the housing industry to work together towards the collective goal of ensuring that every Nigerian owns a home at affordable prices

“…everyone deserves a home”

thank you
THANK YOU

FEDERAL MORTGAGE BANK OF NIGERIA

PLOT 266 CADASTRAL AO

CENTRAL BUSINESS AREA

ABUJA

www.fmbnigeria.org

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