Mortgage Banking in Nigeria

Mortgage Banking in Nigeria

MORTGAGE BANKING IN NIGERIA –  THE COLONIAL PERIOD

During the early colonial period, the housing activities and policies of government focused essentially on the provision of quarters for the expatriate staff and for selected indigenous staff if specified occupations like Railway, Police and so on.This period saw the establishment of government residential Areas (G.R.A) as well as a few “African Quarters”.  No effort was made by the government to build houses for sale or rent to the general public and little was done to allow the growth of settlement outside the government ordinance (CAP95), the Lagos Executive development board (LEDB) was created in 1928 and charged with effective planning and development of Lagos.

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The creation of the LEDB was inherent from the bubonic plaque which ravaged Lagos in the early 1920.  After 1954, and with the approval of the Lagos central Planning scheme, the LEDB attempted to solve the problems of housing development in the metropolis.  The effort resulted in the following schemes

–              workers housing estate and re-Housing estate, Surulere.

–              Akinsemonyi and Eric Moore Housing Estate, Surulere

–              Workers Housing scheme and sites and services Estate at Surulere, Apapa, Ikoyi Ilupeju and Isolo.

In 1956, the NigerianBuilding society was established to provide mortgage loans.

However, their mortgage operations did not achieve much because of limited financial resources and the poor response of the public to savings scheme operators by the NigeriaBuilding society (NBS).

During the same year, the colonial government introduced the African staff housing fund, which was meant to encourage African civil servants to own heir own houses.  Also prior to independence the Regional Governments established various housing  corporation to provide housing for the general public.  These corporations could not extend their services to the low-income group, but they formed the nucle; of modern housing estate, in housing estate in Nigeria.

   MORTGAGE BANKING DURING THE POST INDEPENDENCE PERIOD (1960-1977)

During the period immediately after independence emphasis was placed on the five yearly development plans as the vehicle for economic growth.  The housing sector however suffered from near complete neglect in the first two plans.  With the out-break of the Civil was in 1967, the housing situation deteriorated further especially in the war affected areas as all energies and resources were directed on the execution of the war.

The National council on housing consisting of all state commissioners responsible for housing was established.  This marked the first significant and direct attempt by the Federal government to intervene positively in the area of housing.  It led in 1972 to the establishment of the national housing programme (NHP) during the second national Development Plan period.

The federal Government through the enabling decree intended to construct fifty-Nine thousand (59000) dwelling units with fifteen thousand (15000) in Lagos and Four thousand (4000) in each of the eleven state capitals.

According toe Jorgensen No 1997, the Federal housing authority was established to Co-ordinate a nation wide housing programme.  Also in may, 1972 the functions of the African staff Housing Scheme was taken over by the newly established staff  Housing Board for the purpose of giving loans to the civil servants to enable them build or purchase their own homes.

According to Megbolughe on FMBN Journal vol. 1 1987 a new fed min of Housing, Urban development and environment was created and charged with the responsibility of initiating and co-ordinating the policies in housing related areas.

During this period, the following Panel and committees were constituted especially to deal with some of the problems of Housing and housing delivery.

(a)              The committee on standardization of House types and polices (1975) was set up and this marked the first attempt by government at recognizing the housing problems of low-income group, who earned less than three thousand Naira (N3000) per annum.

(b)             The recommendations of the committee resulted in the acceptance of the low income housing concepts of the world bank (International Bank for Reconstruction and Development).

(c)              Rent panel (1976) was set up to review the structure and level of rent in the country.  Their  recommendations resulted in the establishment of state rent tribunals which have proved ineffective in controlling rent.

(d)             The land use Panel (19777) was set up to examine the various tenure and land ownership systems in the country.  Their recommendations led to the promulgation of the land use decree which was a major step in land reform aimed t making land readily available for development.

(e)              The Nigerian Building society was converted by 1986 FMBN journal 1986 vol 1. No 1 to the Federal mortgage bank of Nigeria with a capital base of twenty million naira (N20m) in 1976 and increased to one hundred and fifty million naira (N150m) in 1979.  The impact of the Federal mortgage Bank of Nigeria was not very significant and mot of it’s loans went principally to the middle and high income groups.

MORTGAGE BANKING IN THE SECOND CIVILIAN ADMINISTRATION (1979-1983)

The increasing deficit of urban housing as well as its continuous deterioration in the rural areas dictated the high priority rating given to housing by the defunct civilian government.  An elaborate national Housing programme was embarked upon in 1980 based on the concept of affordable and citizen participation.

The target group was the low income earners whose annual income did not exceed five thousand naira (N5000) for the three- bedroom houses.

A total of forty thousand (40,000) units were to be constructed annually nationwide with two thousand (2000) units located in each state including the Federal capital Territory (F.T.C) Abuja.  Out of the state allocation, eight percent was earmarked for low-income earners.  However, by June 1983, only thirty two thousand units had been completed.

Although about N1.9 million was budgeted for housing by the Federal government in the fourth National development Plan (1980-19985) an estimate for six hundred million naira (N600,000,000) was expended on the implementation of national Low-cost housing programme.

Inspire of this very high level of investment the impact of the programme on the overall housing market was extremely negligible.

INSTITUTIONAL FRAMEWORK FOR HOUSING DELIVERY

This forms the basis of the entire housing delivery  system and as such greatly influences the success of housing delivery.  Institutional roles begin at the initial stages of policy development and continued through the implementation and review stages.

Given the socio-economic and political significance of housing and housing facilities, all the three levels of government and the private sector (Primary Mortgage Institutions) must be involved and assigned specific roles in housing development.

FUNCTION OF THE FEDERAL GOVERNMENT

The Federal government initiates, defines and co-ordinates the policy options and instruments for achieving objectives in housing sector.  Actual implementation is undertaken by appropriate agencies at Federal state and Local government levels. The Federal government formulated policy to co-ordinate, construct and monitor programmes and promotes the establishment of Primary mortgage institutions in the country

THE FEDERAL HOUSING AUTHORITY (FIA)

The Federal housing Authority (FHA) was established in 1973 to perform three main functions.

–              The preparation and submission from time to time to the federal government all proposal for national housing programmes.

–              The making of recommendations of government on such aspects of Urban and Religional Planning, sewage and water supply, transportation and communication as may be relevant to the successful execution of housing programmes approved by the government.

–              The execution of such housing programmes as may be approved by the government.

–              Since 1979 to the present time, the federal Housing authority has been minimally involved in the federal Housing programme.  Until recently the authority was not able to discharge effectively the functions of providing affordable housing for all income groups in the country due to: •· Over-dependence on subventions from the federal ministry of works and Housing •·Inability to recover outstanding mortgage repayments from beneficiaries •·                    Administrative and financial mismanagement.

THE FEDERAL MORTGAGE BANK OF NIGERIA (FMBN)

The federal Mortgage Bank of Nigeria (FMBN) was recognized to function as the sole institution at the source to the housing industry.  To this effect, the FMBN functions as an Apex mortgage institution in the country.

The Nigeria Banker (Jan – mar, 1993) Vol. 4 rightly informs that “the federal mortgage Bank of Nigeria was set up in 1977 to carry out tripartite functions of serving as the nations apex mortgage outfit.  Supervisory agency on all housing finances businesses as well as undertaking the retail mortgage and banking operations.  Consequently, it virtually monopolized the mortgage institutions (PMIS) in 1989.  however the federal mortgage Bank of Nigeria saddled with the responsibility of regulating and supervising the activities of the (PMIS) and the additional responsibility of managing the national Housing Fund Scheme.  In consequence, the federal mortgage lending and banking operations either to carried out by the former Federal Mortgage Bank of Nigeria.”

FUNCTIONS OF THE STATE GOVERNMENT

The National Housing Policy makes each state to formulate housing policies and programmes in line with the overall housing development effort.

State government perform the following functions:

–              Establish appropriate agency to execute public housing programme.

–              Establish state committee of the national housing facilitation Council

–              Promote the formation of Housing co-operation

–              Promote the formation of building societies.

–              Provide law-income housing through the appropriately designated ministry or Agency.

–              Carry out re-development or upgrading of existing residential areas.

–              Facilitate home ownership for its workers.

–              Prepare regional and urban master plans.

–              Play an active role in the identification, production and se of building materials form local resources in order to ensure availability of cheap building materials for housing development.

FUNCTIONS OF LOCAL GOVERNMENT

In view of serious problem of funding and executive capacity, local governments have not been able to perform effectively in housing delivery.  Being closest level of government to the people, local governments have a key role to play in housing.  Accordingly government should provide enough finances for them to function in these areas of:

–              Providing residential layout for low-income housing through local planning authorities.

–              Assist in the formulation of Housing co-operatives.

–              Determine the housing needs of the rural population.

–              Provide infrastructure through loans from the infrastructure development fund (IDF).

HOUSING FINANCE IN NIGERIA

Of the major pillars of national housing policy, finance constitutes a basic centerpiece without a well organized and efficient housing finance system, it is difficult to mobilise substantial financial resources for channeling funs into the housing sector.

A key feature of housing finance is the ability to combine three partially conflicting objectives of affordability for households, viability of financial institutions and resources mobilization for the expansion of the housing finance sector within the framework of the financing of housing presents some specific problems.

–        It involves individuals and developer required long-term        lending as against business on short-term basis.

–        It requires significant intermediation efforts because     housing finance institution are expected to lend on a long       term.

REVIEW OF THE PREVIOUS HOUSING FINANCE SYSTEM IN NIGERIA

Nigeria’s previous housing finance system was severely under developed and ill-equipped to mobilise the channeling of funds or saving to the housing sector.  The Federal mortgage bank of Nigeria (FMBN) has been re-organized to serve as a wholesale and apex mortgage institution.  The outer institutional components of the mortgage institutions such as mortgage Banks, building societies, housing societies, credit union and housing co-operations have not developed in the country.

Thus, untill 1989 (Following the mortgage institutions Decree 53 of 1989), the FMBN has concentrated largely on retail functions of lending to individuals.

Federal mortgage bank of Nigeria report reveals that “from the commencement of its operations in 1977 to 1991, it has granted loans valued at N442.6 million to only tight thousand, eight hundred and seventy four (8,874) Nigerians.”  The structures of Housing finance in Nigeria.  FMBN Journal Vol 1., 1987.  On the whole, the bank has concentrated its operations on social loans, which account for about ninety percent (90%) of its total loan portfolio while wholesale lending to PMIs, (Housing Corporations, and Estate Developers) Constituted only ten percent.

The banks lending practice did not favour low-income households.  As such ninety three percent (93%) of loans granted to individual mortgagers went to middle and upper income earners or households.  Thus the objective of assisting low income groups to own houses through subsidized mortgage loans was not then realized.

By that time, given the total absence of primary mortgage institutions, and greater competition from commercial banks for resources mobilization the federal mortgage bank of Nigeria was unable to mobilize adequate funds for the housing sector.  Apart from the equity capital of N150 million, the FMBN’s major sources of funds have been loan from the federal government and Central Bank of Nigeria.  Osamwonyi FMBN Journal Vol. 1 No 5 report such loans totaled N25.7 million from the Central bank funds from savings Deposit rose from N21.4 million in 1979 to N131.2 million in 1986.  However, funds available from all these sources were grossly inadequate to meet the high demand for mortgage loans as shown in Table I

MORTGAGE LOAN APPLICATION

OUTSTANDING APPLICATIONS FOR AVAILABLE FUNDS

FUNDS

N(MILLION)

N(MILLION)

1994

223.8

127.0

1995

350.9

239.5

1996

584.5

193.5

1997

676.8

153.1

1998

535.0

154.4

1999

318.6

109.8

2000

373.7

95.9

2001

465.8

105.3

TOTAL

3529.1

1178.5

However the central Bank credit guidelines do not requires them to invest more than ten percent of their total non-life investment fund in real property (section 18 of the Insurance Decree No. 59 of 1996).  The restrictive limit in the case of investment of life funds in real property is put at twenty five percent by the same degree.

The national provident Fund (NPF) is presently constituted plays a very insignificant role in housing finance in Nigeria.  For instance, of its total investment Portfolio of N336.3 million in 1980 96.9% (or N325.9m) was invested in government development stocks as required by law instead of using such fund for the provision of housing limits in Nigeria.

THE PRESENT SITUATION OF MORTGAGE BANKING IN NIGERIA

There is no gain saying that fact that housing is one of three basic needs of man.  It is essentially forthis that housing has remained central to all the National Development efforts of the government.  The threshold of the PMls following the promulgation of Decree no 53 1989 was seen as a panacea for the age-long housing crisis and a supplement to the myriad policies of government.  It is therefore discernable that many challenges awaited these institution.

A paramount challenge for the PMls has to do with restoring public confidence and credibility damage in recent past due to several factors such as how capital base, outright fraud by operators lack of professionalism, and the general hostile economic environment among others.

In a sense, hopes and aspirations of Nigeria of affordable housing was rekindled by the emergency of the PMls only to be dashed by the myriad of problems which engulfed the industry and actually rent a large number of them out of business.  It is also worthy of mention that the shortfall in supply of housing stock in especially the urban centers and towns for which past housing the centre-piece of the activities of primary mortgage institutions (PMls).

According to a school of thought, the emergency of PMls was timely considering the unprecedented pre-occupation of the government in the provision of too many utilities for the citizenry.  There have been many unexplored business opportunities that abound in both the housing sector and housing finance sub-sector that needs the adventure of entrepreneurs to explore them of economic returns for which the government lack the initiative to do. These opportunities ranged from housing finance consultancy, large scale commercial estate development and land development.

The PMls render services as both facilitator as well as channels for the disbursement of the National Housing funds to beneficiaries.  By implication, the PMls are to the mortgage industry what commercial banks are to the money market.

The PMls are expected to fill the apparent vacuum that has existing over the years in the provision of adequate hosuing finance services which is best undertaken by professionalized and specialized mortgage institutions like Harvard Trust Savings and Loans Ltd.

STRUCTURE OF THE NIGERIA MORTGAGE MARKET

Mortgage market refers to the characteristics and behaviour of the supply and demand curves of mortgage loans in the determination of the price of the loans.

CURRENT STRUCTURES:

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This article was extracted from a Project Research Work Topic

MORTGAGE BANKING AND CONTRIBUTIONS TO HOUSING DEVELOPMENT IN NIGERIA

A CASE STUDY OF HARVARD TRUST SAVINGS AND LOANS LTD

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Mortgage Banking in Nigeria

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