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THE ROLE OF FMBN IN THE DEVELOPMENT OF THE NIGERIAN MORTGAGE MARKET A PAPER PRESENTED BY MR. GIMBA YAU KUMO, MD/CE, FMBN AT THE 1 ST ASO HOUSING EXHIBITION.

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Presentation on theme: "THE ROLE OF FMBN IN THE DEVELOPMENT OF THE NIGERIAN MORTGAGE MARKET A PAPER PRESENTED BY MR. GIMBA YAU KUMO, MD/CE, FMBN AT THE 1 ST ASO HOUSING EXHIBITION."— Presentation transcript:

1 THE ROLE OF FMBN IN THE DEVELOPMENT OF THE NIGERIAN MORTGAGE MARKET A PAPER PRESENTED BY MR. GIMBA YAU KUMO, MD/CE, FMBN AT THE 1 ST ASO HOUSING EXHIBITION & CONFERENCE 17 TH – 18 TH 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. 2

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 3

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 4

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 CHART 1CHART 2

6 THE MANDATE OF FMBN 6

7 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 1 st tranche of the N100 billion Mortgage-Backed Bond programme to sell FG non-essential residential houses in the FCT in Year The expected refinancing of about 6,533 outstanding mortgages valued at N14 billion in the 2 nd tranche 8

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 -FMBNs mortgage-backed bond (MBB) continued to retain its AAA rating 9

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. 10

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 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) 11

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 12

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

14 NHF CONTRIBUTIONS REFUND: Cumulative of N942,662, 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 FMBNs 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. 14 OTHER ACHIEVEMENTS AS AT DEC 2010

15 FMBN: STRATEGIC FOCUS & PLANS 15

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 FMBNs 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 16

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 -which contributes as 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. 17

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 18

19 FMBN: THE CHALLENGES 19

20 Institution/Country (Year)Paid-up Capital (000) Total Liabilities (000) Cagamas Holdings Berhad – Malaysia (2009)US$49,309US$9,811,535 Hong Kong Mortgage Corporation Ltd. (2009)US$256,862US$6,808,213 Sociedad Hipotecaria Federal – Mexico (2008)US$342,235US$4,760,743 National Housing Finance Corporation – South Africa (2010) US$117,788US$93,628 Canada Mortgage & Housing Corporation (2009)US$25,196US$265, 629 Average Paid-up Capital for selected InstitutionsUS$158,278 Federal Mortgage Bank of NigeriaUS$16,367US$352, INADEQUATE CAPITAL BASE: Low capitalization in comparison with similar secondary mortgage institutions worldwide -FMBNs capital base is currently equivalent to US$16m compared to an average of US$158m held by similar secondary mortgage institutions 20

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

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

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 organised labour -only 3.5m out of 50m workers are registered -employers not remitting deductions to FMBN or not deducting at all 23

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 24 …everyone deserves a home

25 THANK YOU 25


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