Before the recent release of names of Bad Mortgage debtors by Federal Mortgage Bank of Nigeria, the Managing Director of the Bank, Mr. Ahmed Abdulsalam granted an audience to the Economic Confidential on his visions and missions at the apex mortgage institution in Nigeria.


Excerpts:

EC: What are the mandates of Federal Mortgage Bank of Nigeria?
The major focus of the Policy on Housing and Urban Development is to evolve sustainable liquidity for the housing finance sector to ensure that all Nigerians own or have decent, safe and sanitary housing accommodation at affordable cost. Therefore FMBN is mandated to raise the quality and quantity of funds, in particular, from the capital market, to meet the mortgage-financing need of Nigerians. The bank is to evolve into a viable secondary mortgage institution with the capacity to become an active player in the capital market.


EC: What then can you point out in clear terms as the functions of the bank?
The functions of the banks are indeed many. But in a nutshell I can say that FMBN encourages the emergence and growth of viable secondary mortgage market to service the needs of housing delivery in all parts of Nigeria; we link the capital market with mortgage markets and encourage and promote the development of mortgage institutions at local, state and federal levels and. In addition to these we collect, manage and administer the National Housing Fund in accordance with the provisions of the National Housing Fund Act.


EC: What are the strategies you put in place for the development of the Nigerian mortgage finance sector?
While we have a short-term and long-term objective. In the short-term which we have started to pursue is to consolidate on capital market activities with issuance of subsequent tranches of its N100 billion bond. Similar scheme is planned to refinance the sale of FG houses outside the FCT. We will support legal and regulatory framework review for amendment/replacement of unfriendly housing-related laws and sponsorship of draft securitisation and power of sale bills. We have also start to consolidate NHF collection and funding operations in pursuit of matching employer contributions and compliance with statutory contributions by banks and insurance companies as provided by the NHF Act.

 
EC: What about your medium-term objectives?
In our medium-term objectives we intend to within six months to one year to issue mortgage bonds based on the Bank’s financial strength or government guarantee or both. We will aggressively work towards attracting foreign funding and investments through facilities from international financial and multi-lateral institutions and private international investments (once the global financial crisis eases up). We have commence liquidity facility provision for mortgage originators. This is tenable through loans purchases off originators on recourse or non-recourse basis to providing liquidity to the primary mortgage market. Our objectives in all these is to introduce Mortgage and Title Insurance, mitigate mortgage-related risks and ensure affordability and expand mortgage financing to non-salaried informal sector. Presently we encourage formation of housing cooperatives and expand mortgage finance delivery to target groups such as teachers, nurses, mission groups such as the Catholic missions and dioceses, organised Islamic organisations, trade groups, etc. Like commercial banks in the country we are working on financial products development through innovative products that would appeal to our customers.

 
EC: So what happen after that? I mean your long-term objectives?
Our long-term objectives goes beyond one year and it will be more on mortgage securitisation by integrating mortgage & financial markets via issuances of mortgage financial products. There is also microfinance banking strategy for mortgage delivery by developing mortgage products for the low-income class. Another area of emphasis is the idea of consolidation of Depository (NHF) Operations by providing financial enhancements for PMIs to compete with banks and ensuring compliance with mandatory contributions provisions of the NHF Act for all workers, insurance companies, banks and the Federal Government. We intend to emulate some example from foreign countries like the counterpart contributions from employers that has been successful in Singapore and Mexico. Our management has decided on the need to commence Commercial Lending Operations, using capital market resources applied as market-determined, risk-based priced loans.  Another method we are working on is on collation of Housing and Housing Finance Data where FMBN would sponsor/collaborate with other bodies for the collation of housing-related data to guide decision-making and strategic planning for the sector. And lastly the bank will support Rental Market Development as an alternative access to affordable housing to reduce the incidences of sub-standard/slum conditions prevalent in high-density cities.

 
EC: What would you describe as the major challenges to mortgage financing in the country?
Let me start by saying that the dearth of basic infrastructure, which adds up to 30% of housing development costs as well as the high cost of building materials is a major challenge that need to be addressed

 
EC: What are the other problems in the sector?
Other problems include bureaucratic and costly land administration by state government registries, high cost and procedural difficulty to foreclose on defaulting mortgages. You should be aware that the World Bank Doing Business 2008 Report ranks Nigeria 173rd of 178 countries as property registration procedure involves an average of 14 procedural steps, 82 days and cost of 22% of property value. 


EC: How do you intend to generate funds for the bank in meeting its statutory mandates?
A mortgage bank finances its projects and survives in the competitive environment through various ways like any other bank. For your information, the FMBN needs to recapitalize and requires budgetary funding to meet the huge financing need of the Nigerian housing sector. If you compare FMBN as an apex mortgage institution in the country with similar secondary mortgage institutions around the world, you will realize that our current capitalization of N2.5 billion (US$17 million) is inadequate compared to an average of selected contemporaries.


EC: Can you give example of those contemporaries?
For instance Cagamas Holdings Berhad of Malaysia in 2007 had US$40,350,978 paid-up capital while its total liability was US$8,884,664,348. The Hong Kong Mortgage Corporation Ltd during the same period had paid-up capital of US$257,871,861 and total liability of US$5,140,623,760. The Sociedad Hipotecaria Federal of Mexico in 2008 had paid-up capital of US$342,235,042 with a total liability of US$4,760,743,960. Even our own African brother, I mean the National Housing Finance Corporation of South Africa had paid-up capital of US$80,421.00 and total liability of US$52,300,671 as at 2008. As the giant of Africa, FMBN as at 2007 has paid-up capital of US$17,005,877 (equivalent to N2,500,000,000) while its total liability was US$336,600,000 which was equivalent to N49,500,000,000.


EC: Precisely how much would you require for recapitalization
For us to raise delivery of secondary mortgage operations, we need nothing less than N150 billion for our recapitalization. I also believe on the need for creation of multiple lending windows in order to deepen banks’ existing windows of Primary Mortgage Institutions (PMIs).

 
EC: But you have already received some injections of funds...
I agree but the current injection of N2.5 billion which is about $17 million for FMBN is grossly inadequate to provide the necessary boost for mortgage financing in Nigeria especially as I had said if you compare an average capitalization of about $132 milion in some contemporary countries. As you are aware recapitalization and consolidation exercise is also crucially needed for the PMIs in order to improve their capacity to generate the magnitude of quality mortgage loans necessary for the takeoff of the secondary mortgage market. I must add that our bank has concluded arrangement to float N17billion bond in the capital, in addition to our recapitalization process. We have a N100 billion Federal government guaranteed bond our of which N27billion had been issued


EC: Can you give us an estimate of your recent disbursement to PMIs
FMBN has disbursed a total of n41.9bn to primary mortgage institutions and estate developers, representing about 52.8 percent of the n79.5billion approved for disbursement as at the end of of January 2009. Between 2006 and January 2009, we accumulated a total of N41.9billion through the National Housing Fund (NHF) scheme out of which N666million was disbursed to beneficiaries under the scheme.

 
EC: Can you give a rough estimate of home ownership in Nigeria?
Home ownership in the country is currently about 25percent of the populace. Nigeria actually requires at least 700,000 units of houses every year to make any positive impact to the need.

 
EC: How do you think mass housing programmes can be better achieved?
Everybody has a role to play. Every tiers of government needs to be actively involved especially in providing lands. Organized private sector too could come in. For instance if government provides infrastructures coupled with bank loans at single digit interest rate, the ripple effect on mass housing will be better felt and the gains will be for all Nigerians


EC: In conclusion what is the way forward?
FMBN will continue to render its supports to mortgage institutions towards ensuring that houses are affordable to average Nigerians. We are all aware that the current global financial crisis has curtailed the availability of foreign credit and investment but the local institutions should not shy away from their responsibilities in meeting their mandates. It is regrettable that over 60% of prospective mortgage borrowers fall below the poverty line and the inability of the majority of Nigerians to afford mortgages was as a result of that factor and low earning power. For us at FMBN we are working tediously to ensure that houses are made more affordable to Nigerians through our partners.