Repositioning mortgage institutions for improved service delivery

The newly launched Mortgage Refinance Company is an instrument that will inject life into banks, insurance companies and mortgage banks even as mortgage rates will improve. FRANCIS ADINOYI KADIRI write

From every angle that mortgage financing may be looked, the fact is that it has tended towards the exclusive preserve of the rich in Nigeria. For example, from the cost of financing to the ability of the borrower to offset the loan facility, the majority of the Nigeria populace has been on the losing and receiving end. But the truth is that mortgage sector deals with one of the fundamental measures of the strength of every economy- the standard of living, even as the yearly human development index report will always make mention of it.
In many developed societies, the sector has been strategic to the extent that what its activities determine the condition of the rest of the economy. For example the recent global meltdown had a link with mortgage default, particularly in the United States of America.
The growth in the sector has overall bearing in the activities of the financial system, including the insurance sector. In Nigeria, the financial system has many segments that operate independently, with attendant inefficiency. For example, we may not readily see the linkage or collaborations among the insurance, mortgage and banking sectors, at least, not much have their various property insured; not much can access the mortgage financing; and deposit money banks are inhibited at present, given high Monetary Policy Rate.
Meanwhile, the Average U.S. rates for fixed mortgages rose slightly recently, but remained near historically low levels. Mortgage buyer, Freddie Mac, said the rate on the 30-year loan increased to 4.47% from 4.42%. The average on the 15-year fixed loan rose to 3.51% from 3.43%.
However, mortgage rates peaked at 4.6% in August and have stabilized since September, when the Federal Reserve surprised markets by taking no action on starting to reduce its $85 billion monthly bond purchases. The purchases are designed to keep long-term rates such as mortgage rates low.
According to a government report, U.S. builders broke ground on homes in November at the fastest pace in more than five years, strong evidence that the housing recovery is accelerating despite higher mortgage rates.
Data from the National Association of Realtors showed the number of people who bought existing homes in November declined for the third straight month as higher mortgage rates made home-buying more expensive. In addition, the lingering impact of the partial government shutdown in October may have deterred some sales. Still, the realtors’ association projects that total U.S. home sales this year will be 5.1 million. That would be the strongest since 2007, when the housing bubble burst.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals one percent of the loan amount.
The average fee for a 30-year mortgage was unchanged at 0.7 point. The fee for a 15-year loan declined to 0.6 point from 0.7 point. The average rate on a one-year adjustable-rate mortgage rose to 2.57% from 2.51% last week. The fee increased to 0.5 point from 0.4 point. The average rate on a five-year adjustable mortgage rose to 2.96% from 2.94% last week. The fee remained at 0.4 point.
Government decided that the outlook for the economy appeared strong enough for it to reduce the monthly bond purchases starting in January by $10 billion.
There are projections that fixed-rate loans on mortgages will rise in U.S. this year to 5.5% from 4.47% presently. Yet, that rate contrasts with what obtains in our clime and shows that we are still very far from the desired. Granted, the Federal Mortgage Bank of Nigeria, under its National Housing Fund, pegged mortgage rate at six per cent, but the question remains “how many Nigerians are accessing it and how long it takes to complete the processes.” For the deposit money banks and mortgage banks, the rates start from as high as 18% to 22% or even more.
The reasons for the expected rise on mortgage rates in U.S. were hinged on the Federal Reserve intention to continue reducing its monthly purchases of mortgage bonds and Treasury securities, which will have the side effect of raising rates. The national economy was also seen as picking up its steam, based on the latest quarterly data. Higher growth rates in turn will increase demand for available credit and probably nudge rates higher.
There are new federal regulations for mortgage lenders aimed at avoiding another bubble bust, due to take effect January 10. Not only will loan officers and underwriters scrutinize applicants’ income, debt ratios and credit extra carefully, they’ll probably charge more for borrowers whom they see as a higher risk and against the backdrop, some mortgage economists predict that conventional 30-year, fixed-rate loans could go to 5.5% before year-end.
It is also worthy of note that these mortgage financing are offered in variants rather than the one size fits all obtainable in the country. Beside the traditional mortgage product that guarantees a specific rate for 15 to 30 years, there is another offer on the shelf in the way of hybrids- loans that provide a guaranteed fixed rate for a pre-defined period of time, say five, seven or 10 years and then, convert to a rate that can change annually. However, the case for sticking with a traditional fixed-rate mortgage is somewhat straightforward.
Recently, Nigeria’s elusive mortgage sector transactions showed a sign of optimism for all stakeholders as lending rates projected to crash soon to all-time low, with tenors increased to 20 years by mortgage banks. The development, expectedly, would be facilitated by the coming on-stream of the Nigerian Mortgage Refinancing Company (NMRC). The optimism was also based on the assessed impact already created by the announcement effect of the coming NMRC.
The newly launched Mortgage Refinance Company (MRC) of the federal government got a boost as the federal executive council approved a $300 million facility to be accessed from the International Development Association (IDA), a member of the World Bank to launch the institution.
According to the minister of state for finance, Alhaji Yerima Ngama,
“this facility is going to be used to meet the government’s objective in the proposed housing finance project. The Nigerian housing finance project is aimed at increasing access to housing finance through primary as well as secondary mortgage market in Nigeria. Right now, we only have primary mortgage institutions. So we are going to establish a mortgage refinance company that will benefit from this. Hence $250 million will be devoted to the establishment of the mortgage refinance company.
“The remaining money will also be used for three other companies for the Nigeria housing finance project. The establishment of mortgage guarantee product targeted at the lower income borrower will gulp $25 million. This guarantee will enable people who otherwise cannot provide adequate collateral to access loans.”

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