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 THE ROLE OF FMBN IN THE DEVELOPMENT OF THE NIGERIAN MORTGAGE MARKET

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.

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

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

OVERVIEW OF HOUSING IN NIGERIA CHART 1 CHART 2 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

THE MANDATE OF FMBN

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

PERFORMANCE ON MANDATE 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

PERFORMANCE ON MANDATE 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

PERFORMANCE ON MANDATE 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.

PERFORMANCE ON MANDATE 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)

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

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

OTHER ACHIEVEMENTS AS AT DEC 2010 NHF CONTRIBUTIONS REFUND: Cumulative of N942,662,263.88 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.

FMBN: STRATEGIC FOCUS & PLANS

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

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.

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

FMBN: THE CHALLENGES

Institution/Country (Year) 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 Institution/Country (Year) Paid-up Capital (‘000) Total Liabilities (‘000) Cagamas Holdings Berhad – Malaysia (2009) US$49,309 US$9,811,535 Hong Kong Mortgage Corporation Ltd. (2009) US$256,862 US$6,808,213 Sociedad Hipotecaria Federal – Mexico (2008) US$342,235 US$4,760,743 National Housing Finance Corporation – South Africa (2010) US$117,788 US$93,628 Canada Mortgage & Housing Corporation (2009) US$25,196 US$265, 629 Average Paid-up Capital for selected Institutions US$158,278 Federal Mortgage Bank of Nigeria US$16,367 US$352,241

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

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

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

“…everyone deserves a home” 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”

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