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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 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

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  1. 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

  2. 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.

  3. 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

  4. 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

  5. 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

  6. THE MANDATE OF FMBN

  7. 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

  8. 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

  9. 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

  10. 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.

  11. 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)

  12. 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

  13. MANDATE 4: Collect and manage the NHF:NHF/PMI and Estate Development Loans

  14. 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.

  15. FMBN: STRATEGIC FOCUS & PLANS

  16. 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

  17. 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.

  18. 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

  19. FMBN:THE CHALLENGES

  20. 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

  21. Cost To Register Property – Administrative Fees Vary 2. HIGH COST AND DELAY IN MORTGAGE PERFECTION WB: Doing Business Report

  22. Governor’s Consent – Bottleneck To Registering Property 2. HIGH COST AND DELAY IN MORTGAGE PERFECTION CONT… WB: Doing Business Report

  23. 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

  24. 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”

  25. THANK YOU FEDERAL MORTGAGE BANK OF NIGERIA PLOT 266 CADASTRAL AO CENTRAL BUSINESS AREA ABUJA www.fmbnigeria.org

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