With the rising population in the country, there has been a steady rise in the demand for housing, with the government working towards affordable housing for all through the National Housing Fund. Chief Executive Officer and Executive Secretary of the Mortgage Banking Association of Nigeria (MBAN) Mr Kayode Omotoso in this interview with Bukola Idowu says housing for all requires the commitment of all stakeholders including prospective home owners.
How would you rate public perception of mortgage banking in Nigeria?
Mortgage banking in Nigeria is still very young compared to the developed economies of the world where the mortgage sector is up to 100 years.
As a result public perception sector might not be much, because people need to understand the origin, the realities, the macro and the micro environment in which the mortgage banks operate. Also the legal and regulatory framework would have to be considered before the public perception could be termed to be right and of good measure. But for us, what we can tell you is that we are making efforts in the mortgage banking sector to ensure more people are enlightened on the workings of the sector.
Given the rising population in the country and high demand for shelter, do you think mortgage banks are well harnessed to make use of the opportunities before them?
With the rising population which will definitely result in increasing demand for housing and home ownership, it will be pretty difficult for the mortgage banks alone or in tandem with the government to tackle the issues and challenges in the sector. It will require not only the regular financial system of the commercial banking. We would also have to access the capital market which is the major source of long term reasonably priced credit which we can upload to meet the increasing demands for home ownership. All over the world, this is what operates: government, central bank, mortgage banks, commercial banks as well as the capital market, all pull funds together in addition to funds from foreign investments, to meet the expectations of home owners in any country. We also need this in Nigeria as at the moment.
Only a few mortgage institutions have taken advantage of sourcing funds from the capital market, why is this so?
There are only four mortgage banks listed on the Nigerian Stock Exchange. Those are the ones that have been able to source their equity capital from the market. There are other mortgage banks that have sourced private capital from the market, but when we need capital to fund home ownership we are really talking of both equity capital and debt capital. This includes long-term bonds which will eventually lead to securitisation. Those are the modes that are favourably used to finance home ownership. But I can assure you that on our way forward, more mortgage banks will approach the capital market to raise equity while the sector itself will approach the capital market to raise equity, hybrid and long-term debt instrument to finance home ownership.
The CBN recapitalisation deadline for Primary Mortgage Institutions of April 2013 is fast approaching, how poised are mortgage institutions to meet the deadline?
The minimum regulatory capital before now was N100 million but the recapitalisation which will terminate in April 2013, is categorised into two. We have the National Authorisation Licence, which requires a capital base of N5 billion and the State Authorisation Licence which is N2.5 billion. All the mortgage banks are in the race. There will be a lot of combinations. There would be mergers, there would be acquisitions, there would be takeovers, there would be strategic investments and there would be efforts to go to the capital market for the mortgage banks to meet up with the recapitalisation deadline. What we can assure you is that come April 2013, we will come up with a number of mortgage banks that will be solid and that would be effective in their efforts to finance home ownership in Nigeria. We held a workshop for directors of primary mortgage banks (PMBs) in July in Lagos, and one of the facilitators was from the NSE. The essence of this is to bridge the gap between the sector and the capital market institutions. So the NSE has already put us on notice as to what will be required and had also made efforts to liberalise some of the terms for the PMBs to come to the capital market. So we expect that naturally things will follow a good flow and by 2013 and beyond we expect that more mortgage banks would emerge from the capital market.
The World Bank estimates that Nigeria would need to produce about 720,000 housing units annually for the next 20 years to be able to close its housing gap, how feasible is this?
We should not operate from a pessimistic point of view; rather we should be approaching realistic and optimistic points of view. A lot of things will have to happen before we can realise the target of 720,000 housing units per annum. The efforts would not be only from the mortgage banks of the financial services sector, there would be a lot to be done by the federal, state and local government, especially in terms of title, titling and cost of transfer of title. We need to scale down the cost and time of obtaining the title and transferring title. We need to revolutionalize the building systems. We cannot achieve 720,000 housing units based on the current brick and mortar attitude of individuals who acquire land and build on their own. We have to do it on economics of scale basis. We have been discussing with them in Abuja and we are looking at housing estates of 10,000, 100,000, 120,000, 200,000 in that quantum before we can tackle 720,000 housing units per annum. We have to look at the building quotes, we have to look at the professionals involved as well as the skilled and unskilled labour. We already have challenges of unskilled labour in terms of those that do building tiles and so on, most of the people that do the building tiles are from West African countries. So there is need for collective efforts from major stakeholders, and not only the mortgage banking sector or the financial system, for us to achieve this goal of 720,000 housing units. It is not insurmountable if all stakeholders could put their heads together, get their acts right and have the will to achieve it. I believe that gradually the political will is building at the level of government and at the level of stakeholders, we are building up momentum to ensure that we achieve this because failure is going to be colossal. So we have to ensure that we succeed.
Some people claim that mortgage banks make huge demands that discourage them from using the mortgage window in homeownership finance, how true is this?
I would be fair and not take sides with either the mortgage banks or the borrowing public, but the fact is that anybody who wants to borrow must subject his or herself to the borrowing rules, procedures and criteria. Mortgage banks would not ordinarily request a borrowing prospect to come up with what is not possible. You must first of all be an account holder in that mortgage bank and that means you must have gone through the know your customer (KYC) procedure when the account was opened, and that means the mortgage bank must have been in contact with you for at least six months to know who you are, to know what is your business, what is your income, what are your values, are you a good borrowing customer, if you borrow, will you be able to repay? Do you have a stable job? It is not necessary that you be in the formal sector, even if you are trading, do you have established accounting principle and procedures of how your income and expenditures follow their patterns. The issue is that Nigerians must be ready to subject themselves to borrowing procedures and principles such that they would have done their part. We will now know if it is the mortgage bank that is not doing its own bit. After the customer has satisfied all the conditions and the mortgage bank does not extend the loan, then we can blame the mortgage bank. But if you had about 20 to 30 per cent out of N10 million you won’t walk out of that project. You would rather sit in the bank to agree how the thing would work. If you had already obtained the loan and you have problem of repayment and you have equity of N4 million out of N10 million, you will sit down with the bank to agree the way forward. But if you have only 200,000 and the house is N10 million it is safe to say you have nothing to lose. So Nigerians must cultivate the habit of having to devote equity and stake in the project that they want to own and live in, that is what is happening all over the world. And we have to be working along global standards for us to achieve our goals in the Mortgage banking sector and for us to live up the expectations of the Nigerian public. That is our message.
The way forward
On our way forward and in an attempt to frontally manage the housing deficit in Nigeria, we have to operate along global standards such that everybody knows what is happening. Everything must be in writing and everybody must understand. So you know that if you have satisfied the rules, you are entitled to the loan and if you have not you are not entitled to the loan. So getting a mortgage won’t be because someone likes your face or not. There would be no lobbying, and everything must be standard. So we are going to pursue what we call minimum mortgage underwriting standard for all the mortgage underwriting companies on our way forward and that would be mortgage banks and commercial banks. The uniform mortgage underwriting standards means that whether you are from a commercial or mortgage bank, as long as you want to do mortgage underwriting, these are the criteria that you must satisfy, below which you cannot operate and above which you are free to operate. So there will be guiding principles and philosophies which everybody must live within the boundary.