Mortgage Refinancing is a financial transaction in which a debtor can replace an existing residency debt obligation with another debt obligation under different terms. Residency debt obligation in this context refers to your initial mortgage loan.

Some of the major reasons people refinance their mortgages are:

• To take advantage of a better interest rate.
• To consolidate other debts into one loan, resulting in longer or term contingents on interest rates and fees.
• To reduce or alter risk. i.e switching from variable rate to a fixed rate loan.
• To reduce the monthly repayment amount.
• To free up cash.

• In the context of personal finance, refinancing multiple debts makes management of the debt easier.

The Nigeria Mortgage Refinance Company [NMRC] has been set up to alleviate the burden of exorbitant bank lending rates. The mandate of the NMRC is to support the banking industry’s ability to deliver mortgage services, where Primary Mortgage Banks and Financial Institutions can offer 15 to 20 year Mortgages at affordable rates to Nigerians. It was created as a Public Private Partnership [PPP] arrangement with shareholders that include:

a)     Government.

b)     International OFIs [IFC, Shelter Afrique etc].

c)     Nigerian Banks.

d)     Primary Mortgage Banks. [PMBs]

e)     Private Equity Investors.

This makes the Nigeria Mortgage Refinancing Company a secondary market institution providing long term funds to mortgage lenders. It will issue long term bonds in the Nigerian financial market as efficiently as possible and channel the proceeds to member institutions at competitive rates. In doing all this the NMRC will develop and set standard documentation and risk characteristics.

The proposed capital structure of the NMRC is a startup capital of 6 Billion Naira, 20% of which would be provided by the Federal government. An initial debt financing of 275 million USD would be made available by the government via a concessional, long term, non interest credit from the World Bank to be distributed in batches. The Nigeria Mortgage Refinancing Company will have access to the capital market, where it can raise money through bond issues guaranteed by the Federal Government, making the NMRC an effective financial intermediation vehicle by its ability to issue highly rated bonds.

In his speech at the launch of the Nigeria Mortgage Refinance Company President Goodluck Jonathan highlighted four key steps necessary to allow the NMRC function effectively and they are:

• Implementation of a computerized land registration system that will make it easier for citizens to receive certified titles, ownership and occupancy to verify certificates, transfer income and transact mortgages.
• Reduction of land registration cost to users for as low as 2%.
• Governors should consider delegation of consent to speed up the process.
• Streamlining of quick completion of the foreclosure processes.

The Federal Mortgage Bank of Nigeria [FMBN] on the other hand is the primary institution in charge of mortgage securities in the nation; it seeks to encourage the emergence, promotion and growth of viable primary mortgage institutions to service the need of housing delivery in all parts of Nigeria. It would also mobilize both domestic and offshore funds into the housing sector at the same time linking the capital market with the housing industry, establishing and operating a viable secondary mortgage market to support the primary mortgage market. The FMBN will also supply the mortgage and housing markets with sustainable liquidity for the advancement of homeownership among Nigerians anchored on mortgage financing.

A close look at both companies show a difference in their modus operandi, the major separation being the NMRC is expected to channel a major share of its funds into the FMBN to reimburse to lenders and financial institutions since the ability of banks to deliver mortgage services is limited being that 80% of all bank deposits are short term loans; thereby creating a means for Nigerians to own homes at affordable rates.

It’s important to add that Mortgage Refinancing has proved a successful process in many industrialized countries i.e Jordan, Brazil, Colombia, Tanzania, Malaysia, Egypt, Argentina, etc. though refinancing terms and condition differ from country to country based on the inherent economic factors.

Comparing the NMRC to its counterpart in the United States Fannie Mae, show similarities that predict success for the Nigeria Mortgage Refinance Company scheme.

The Federal National Mortgage Association of America which is also called Fannie Mae was established in 1938 during the great depression through amendments to the National Housing Act, Borrowers were defaulting en masse on their mortgages leaving the banks without cash. The President, Franklin Roosevelt set up the company to buy up mortgages from the banks in order to free up money for other borrowers. The corporation’s purpose was to expand the secondary mortgage market by securitizing mortgages in the form of backed securities giving room for lenders to reinvest their assets. Fannie Mae then created a liquid secondary mortgage market and made it possible for banks and other loan originators to issue more housing loans.

Majority of their funding is from the Government, who channel the funds through the United States Treasury in the form of percentage stakes. As a company Fannie Mae works with mortgage servicers to reach at-risk homeowners early and help them stay in their homes.

In 2013 Fannie Mae posted 3.9 trillion USD in mortgage credit demonstrating that housing recovery continues to move forward on firm footing.  Despite a higher mortgage interest rate environment, consumers are more optimistic about their access to mortgage credit than they were a year ago, with some saying that it would be easy to get a home mortgage today. This is the effectiveness of Fannie Mae in its nation’s economic system.

Today Fannie Mae dominates the mortgage market in America partly because of the belief that loans backed by Fannie carry an implicit government guarantee; there is a popular belief that the company is so large that the government would never allow it to fail. [Kate Pickert, Time Magazine Monday July 14 2008]

Fannie Mae is one of America’s two largest mortgage companies alongside Freddie Mac, together holding or guaranteeing some 5 trillion USD in debt. From January 1, 2009 through September 30, 2013, Fannie Mae provided approximately 3.9 trillion USD in liquidity, which enabled 3.4 million home purchases and 12.0 million mortgage refinancing. They were also influential in the financing for 2.0 million units of multifamily rental housing during this period and they helped families retain their homes or avoid foreclosure – created 1.5 million workout solutions, including 1 million loan modifications from 2009 through September 30, 2013.

A close look at the two companies show similar orientation, the only difference being that Fannie Mae has had close to an 80 year head start over its Nigerian counterpart. This proves that if managed properly the Nigeria Mortgage Refinance Company will be a successful Federal Government initiative.

Labor impact assessment studies in countries with similar demographics and economies estimate that at least 5.62 direct jobs can be generated with every new home and 2.48 indirect jobs in housing related expenditure. So far our country is yet to realize this potential; the contribution of mortgage financing in Nigeria’s GDP is close to a negligible one percent of GDP compared to 77% in the US, 80% in the UK, 32% in Malaysia and 50% in Hong Kong. Addressing the housing deficit will have a game changing impact on our society and our community. [Dr. Ngozi Okonji Iweala 16^th January 2014]

In closing, the NMRC seeks to improve and develop the housing finance market, promote the capital market by issuing bonds in the local capital market, provide long term finance to Primary Mortgage Lenders and ensure more Nigerians can own homes at affordable residential mortgages.

Now you too can have your own home.

Written by Enemigin Oritseneye | Staff Writer at 3INVEST MEDIA | Contact writer at

 

 

2014-01-20