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Federal Mortgage Bank, you can open an account with 10 kobo!

Federal Mortgage Bank, you can open an account with 10 kobo!

“Federal Mortgage Bank, you can open an account with 10 kobo!”

That was the radio jingle several years ago when the Federal Mortgage Bank of Nigeria (FMBN) was established.The Federal Mortgage Bank of Nigeria (FMBN) is the sole secondary mortgage institution in the country. The bank is empowered by the FMBN Act 1993 to ensure adequate liquidity in the Nigerian mortgage sector.

Being a secondary mortgage institution, FMBN does not grant loans directly to individuals but through the 101 Central Bank of Nigeria (CBN) approved primary mortgage institutions (PMIs) in the country.

The housing market is currently belaboured by a shortfall of about 16 million housing units. The shortfall requires over N56 trillion (at an average cost of N3.5 million per housing unit) to be remedied and improve on the nation’s prevailing home ownership rate of 25 per cent.

Yet, the real estate sector can be developed to account for more than 35 per cent of GDP as seen in other emerging economies. Currently, the mortgage sector contributes less than 3 per cent of Nigeria’s GDP, a trickle of which is funded by less than 5 per cent of the total lending portfolio of Nigerian banks and just about 13.5 per cent of mortgage lending by primary mortgage institutions

The main function of the FMBN is to support the primary mortgage market with liquidity and financial capacity to provide affordable mortgage financing in the market.

To ensure it fulfils its mandate, the FMBN in 2004 was restructured into a Federal Government-Sponsored Enterprise (FGSE) whose main function is secondary mortgage and capital market operations. As an FGSE, the bank is expected to function as a government institution operating on the principles of a private enterprise driven by profit and efficiency with some form of implicit government backing in line with the modus operandi of similar secondary mortgage institutions, such as Fannie Mae and Freddie Mac of the United States.

The essence of the FMBN reforms is to expand its functions from being an institution that solely provides funds to Primary Mortgage Institutions (PMIs) for on-lending for social housing needs under the National Housing Fund (NHF) window to commercial lending for housing to PMIs, universal banks and other mortgage institutions – refinance mortgages created by PMIs, universal banks and other mortgage originators – purchase and warehouse mortgages in its portfolio and ultimately securitise pools of purchased mortgages into Mortgage-Backed Securities (MBS) for subscription by investors in the capital market.

Though FMBN does not rely on any government subvention or grant, most of its revenue is obtained from the National Housing Fund (NHF) deposits or off shore funds. Decree No. 3 of 1992 compels civil servants to allow 2.5 per cent of their salaries to be deducted.

However, the Trade Union Congress (TUC) on Sunday, called on the Federal Government to scrap the National Housing Fund (NHF), describing the fund as counter-productive to workers. Mr. Peter Esele, the President of the TUC, made the statement in an address entitled “Growing the National Economy for Job Creation and People’s Welfare,’’ to mark the May Day celebration.

He said that the NHF contributions which had now run into billions of naira should be transferred to the Federal Government.“Under the current NHF scheme in Nigeria, no civil servant below the directorate cadre can afford to buy or build his or her own house,‘’ he said.

Esele said that the major contributors to the NHF had been federal civil servants whom, he said, had not benefited from the fund.

“Thousands of civil servants eventually applied to the Federal Mortgage Bank of Nigeria, statutorily empowered to administer the fund, for loans to enable them pay the mandatory 10 per cent initial deposit of the total value of houses,’’ he said.

He, however, said that no credit facility was granted to the civil servants, compelling them to go to other banks to obtain loans at high interest rates.

“The TUC, therefore, wishes to request for presidential intervention to ensure that all contributions so far made by the civil servants into the NHF be retrieved from the FMBN and payment of the 2.5 per cent made voluntary.

“In the alternative, an agreement should be reached with the Federal Government Staff Housing Board and the laws amended accordingly,’’ he said.

According to him, the loans board has demonstrated its capability to effectively and efficiently manage funds.

Minister of Lands, Housing and Urban Development, Mr. Nduese Essien, however, has noted that in spite of the huge potentials of the housing sector, it has not contributed much to the national economy.

He said: “The economies of developed countries are solidly grounded in the housing sector where it contributes about 35 per cent to 70 per cent of the Gross Domestic Product (GDP) but unfortunately, we cannot say the same about Nigeria where it contributes less than 1 per cent to the GDP.  The country is highly blessed with abundant land and land resources but these have not been efficiently managed to translate to economic prosperity unlike what obtains in other countries. We are largely a mono product economy which largely runs only on oil.”

The minister, who reiterated that other sources of funding besides the NHF are needed if major progress must be made, urged FMBN to consider using the remainder of the 100 billion bond raised in 2006 for the secondary mortgage market. FMBN, through the capital market, had in 2006 raised N100 billion but only N26 billion had so far been utilised.

“I am aware that the FMBN is still discussing with HSBC and the Debt Management Office about the possibility of getting offshore funds. But more importantly, I would encourage them to look into the possibility of using the 100 billion bond raised in 2006 as a springboard for launching into the secondary mortgage market. On the ministry’s part, we are working on the possibility of providing guarantees and comfort to PMIs so that they can create more mortgages.”

In May 2007, the FMBN recorded the first mortgage-backed bond transaction with the successful floatation of the 1st tranche of N26 billion of a N100 billion mortgage-backed bond (MBB) programme to refinance civil servants’ acquisition of 9,525 non-essential Federal Government-owned residential houses sold in the Federal Capital Territory, Abuja. Coupon payment on the bond to investors due in November and May of each year is up-to-date. Currently, a pool of mortgages of about N14 billion from mortgage loan originators is being processed for the 2nd tranche of the MBB which shall bring the cumulative beneficiaries under the MBB programme to 16,108 home buyers.

The Federal Government plans to raise the bank’s capital base to N100 billion for a start and the bank has said that it will embark on recapitalisation of the FMBN to at least N250 billion over the medium-term of next 24 months.

The Estate Development Loans (EDL) will now be disbursed in three tranches – 40 per cent: 30 per cent: 30 per cent – instead of the original four tranches. This policy shift is intended to enable estate developers have more liquidity and be in a position to complete their housing projects at a faster rate. Again, developers are required under the new dispensation to complete 40 per cent of the houses fully before coming for another tranche.

The bank will monitor effective compliance with this requirement before approving fresh disbursement of another tranche to the estate developer.

The NHF scheme as at the end of February, 2011 has a total of 3,573,667 contributors in both public and private institutions, including government agencies and parastatals, banks, insurance companies, among others, as against 50 million expected contributors.

The FMBN has collected a total of N64,604,387,162.35 under the National Housing Fund (NHF) since inception of the scheme in 1992. A total of N952,272,753.89 has been refunded to 50,812 erstwhile contributors to the scheme who have qualified for refund.

The bank has approved N50,729,742,294.79 as NHF loans for Primary Mortgage Institutions (PMIs) within the same period; and N70,494,261,970.91 Estate Development Loans (EDL) for estate developers. The combined loans approved to both PMI and EDL stood at N121,224,004,265.70 as at February 23, 2011.

Out of this amount, FMBN has disbursed a total of N24,819,332,788.89 NHF loans for building of 16,469 housing units to 16,469 National Housing Fund contributors through PMIs and N36,749,435,773.96 estate development loans (EDL) to estate developers.

The disbursed estate development loans were used to build 27, 524 housing units.

The combined loans disbursed amounted to N61,568,768,562.85 as at February 23, 2011. (See table 1 below).

The combined number of houses built with disbursed PMI loans, MBB and EDL totalled 53,518 housing units.

 

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