CBN Set To Establish Mortgage Refinance Company To Help Make Loans More Affordable For You An I
The CBN has approved a draft Regulatory and Supervisory framework for the establishment of Mortgage Refinancing Companies in Nigeria (MRC). From the draft framework posted on the website of the bank, the MRC’s will have as part of the functions the ability to purchase loans from Primary Mortgage Lenders and in turn repackage and sell to investors seeking an asset with a steady income stream.
It is sort of like what Freddie Mac and Fannie Mae does for the US only that unlike what we have in the US, they will be run by private enterprises. Essentially it will work this way. PMI’s create mortgage loans and lend to you and I to purchase housing assets under terms and conditions which typically requires that we pay over ten years or more. Because the PMI’s need to keep creating more mortgages so more Nigerians can own homes, the may do not have the capacity to wait for us to repay them in ten years. That is where the MRC’s will step in. They will then refinance those loans from the PMI’s and then sell is as Mortgaged Back Securities to Pension Funds and other investors seeking assets that yield steady income streams such as loans.
This model is not devoid of issues such as what caused the subprime mortgage crisis but it is proven to be very efficient in making housing a lot more affordable as well as deepening the housing market in Nigeria. From what I have read of the framework, the MRC’s will be strongly regulated which will help curb some of the weaknesses of the model.
See more on the news on Thisday below;
As part of efforts to enhance liquidity in the mortgage subsector as well as increase the availability of mortgage credit in the country, the Central Bank of Nigeria (CBN) Thursday made public its draft framework on the proposed Mortgage Refinance Company (MRC).
The 38-page document titled: “Regulatory and Supervisory Framework for the Operation of a Mortgage Refinance Company,” posted on CBN’s website, according to the apex bank, prescribed basic regulatory requirements for the MRC’s principal line of business of refinancing credits to borrowers for the security of residential mortgage assets and other qualified collaterals.
“The objectives of the MRC shall be to support mortgage originators such as Primary Mortgage Banks (PMBs) and Deposit Money Banks (DMBs) to increase mortgage lending by refinancing their mortgage loan portfolios. It shall act as an intermediary between originators of mortgage loans and capital market investors who typically are looking for long -dated high quality securities,” it added.
It also stated that: “The MRC shall commence operations with, and maintain at all times, a minimum paid-up capital of N5 billion or such higher amount that the Bank may prescribe.”
The document also explained that the MRC would act as a specialised second-tier institution which would provide short-term liquidity, long-term funding and/or guarantees to mortgage originators and housing finance lenders.
“The benefits of such mortgage liquidity facilities are well documented and globally acknowledged. As a financial institution, the MRC would be under the regulatory and supervisory purview of the CBN.
“This regulatory framework is therefore designed to ensure that the MRC operates in a safe and sound manner, on internationally accepted principles, standards and best practice in mortgage liquidity facilities.
“It also sets the capital adequacy requirements for the MRC, including its minimum paid-up capital, maximum leverage limit, and the minimum risk-weighted capital requirement.
Furthermore, the framework specifies the types of collateral that a borrower can pledge for the MRC’s advances, and the discount that the MRC shall apply in determining how much it can lend against any qualified collateral,” it added.
It also prescribed procedures for the management of the MRC’s interest rate risk, adding that the procedures and criteria to be used in granting a license to the MRC shall be the same as specified for banks under the Banks and Other Financial Institutions Act, CAP B3, Laws of the Federation of Nigeria, 2004 and other regulations issued by the CBN.
Meanwhile, in a bid to halt what it described as unjustified charges, the House of Representatives has urged banks to immediately stop the planned introduction of N100 monthly maintenance fee on ATM cards.
The lawmakers also mandated its committee on banking and currency to investigate all approved bank charges on all accounts and compliance by banks and report back to the house.
The Governor of the Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi, and other relevant authorities were asked to urgently look into the issue.
The lawmakers said if this maintenance fee is introduced, it would cause untold hardship on bank customers.