AN ASSESSMENT OF THE PERFORMANCE OF THE PRIMARY MORTGAGE INSTITUTIONS IN NIGERIA

AN ASSESSMENT OF THE PERFORMANCE OF THE PRIMARY MORTGAGE INSTITUTIONS IN NIGERIA
                         BY
            Gabriel Kuye Olusegun
        HND; Dip.(Property Law); ANIVS; RSV

 

SYNOPSIS

While housing is essential for human existence, its procurement requires huge capital. Both the public and private sectors of the nation’s economy have not made any significant impact towards the provision of housing to the generality of the people because of inadequate access to finance. Reliable sources for fund for real estate development have always been a huge problem and this is compounded because most financial institutions in Nigeria have not been encouraging the private investors in financing their respective real estate investment efforts. All commercial banks and insurance companies over the years have evolved discriminatory lending policies, which effectively render the financial market imperfect for real estate funding. Furthermore, it has become a generally accepted fact that the direct provision of housing by the government has largely failed to improve housing supply owing to non-availability of a well articulated housing policy of the Federal Governmen; and due to the paucity of long term loanable funds for housing development, government resulted to promulgation of Mortgage Institution Decree 53 of 1989. This policy was aimed at securing credit from financial institutions for this purpose. This study therefore has been carried out to appraise the performance and/or effectiveness of the PMIs in housing finance in Nigeria thus far and also identify any challenge confronting the operations of these PMIs with a view of proffering workable solutions.

1.0 INTRODUCTION

In the traditional African society, the provision of housing was seen as a collective communal responsibility but as a result of urbanization, industrialization, colonialism, monetized economy and massive shift to the crowded cities, this collective accountability for home ownership was replaced with individualism, selfishness and self-preservation. The most satisfactory housing is self provided either through personal equity or wholly or partly subsidized by employers of labour through some mortgage financing mechanism. This is because an average worker wants his own house, which he can keep after retirement, a house that suits his taste and preference, and located in a neighbourhood of his own choice. Unfortunately, neither the public nor the private sector has made substantial contribution in the supply of housing to workers of different income groups because of the problem of affordability. Apart from low per capita income, the Nigeria workers have high dependency ratio, low savings and low investment under a harsh economic environment.

Every organized human society all over the world places a high premium on the provision of housing to its members through a system of careful policy formulation and planning in term of the characters, structure, location or neighbourhood of such housing. This is because shelter forms the basis for an organized and structured family life, besides the protection and the privacy it provides.

Capital and credit are sine qua non in the advance technology involved in home construction, warehousing and management. Housing finance is undertaken at two levels. At macro level, the government through budgetary allocation provides capital to the housing sector. At the micro level, housing finance institutions, and private bodies like commercial, merchant banks, saving and loan associations, insurance companies or personal equity provide capital and credit for the construction and consumption of housing. Private financial institution position is understandable if one considers that financing arrangement for real estate development by its nature does not favour their operation i.e. using short-term deposit to finance long-term investment.

The first conscious effort made at home financing in Nigeria was in 1956 when the Commonwealth Development Corporation in conjunction with the central government and eastern regional government formed the Nigeria Building Society (NBS) with a capital base of N2.25 million to provide mortgage loans. However, their mortgage operations did not achieve much because of limited financial resources and poor response of the public, the saving scheme operators. During the same year, the colonial government introduced the African staff-housing fund, which was meant to encourage African civil servants to own their own houses.

In 1972, the Federal Government bought the entire equity interest held by the Commonwealth Development Corporation in the Nigeria Building Society, and this led to change of name to Federal Mortgage Bank of Nigeria by Decree No. 7 of 1977 with the capital base of N20 million. The Federal Mortgage Bank of Nigeria (FMBN) is the apex and regulatory body in this financial sub-sector over the years, and its operations have been both divested it of its retail mortgage banking services. During the formulation of the National Development Plan covering (1975 – 1980) there was an attempt to strengthen the housing programme of the government. This led to the establishment of the Federal Housing Authority by Decree No. 40 of 1973. During the civilian regime in the second republic, there was the fourth National Development Plan, which spanned through the period and had provision of affordable houses as one of its cardinal thrust. Unfortunately, just like most previous efforts, the actual number of houses built feel short of target. Although, so many factors were responsible for this, top among this was political. During execution, award of contract was based on party patronage and this really affected the delivery of the houses.

In 1989, the Federal Government introduced the National Housing Policy, which emphasizes on greater participation of private sector in housing delivery. The objectives of the policy are:

• To encourage and promote active participation in housing delivery by all tiers of
• To strength institution within the system, to rend operation more responsive to housing
• To emphasis housing investment aimed at satisfying basic housing
• To encourage great participation by private sector in housing

At the formative stage of this housing policy in 1985, the issue of housing finance was critically examined by the committee set up to produce a draft of the policy document. Their conviction was that without a well organized and efficient housing finance, it would be difficult to mobilize substantial finance resources for channeling funds into the housing sector. To rectify this abnormally, the committee in its wisdom, recommended to the government that the panacea to a virile housing delivery system which is capable of being equally sustained by a virile housing financial system, is the creation of a two tier financial structure, at the apex of which will be the Federal Mortgage Bank of Nigeria which will concentrate on wholesale lending and decentralized network of primary mortgage institutions which will concentrate on retail lending.

The above review of the housing finance system before 1990 clearly revealed the under developed nature of housing finance institutions in Nigeria. Therefore, there was an urgent need to overhaul the entire housing finance machineries so as to improve their efficiency and to widen the coverage of their beneficiaries. Typically, a housing system expected to:

• Mobilize the savings into mortgage institution
• Allocate the supply of loanable funds households to include self-employed and low-income
• Provide incentives for the market to invest in property development
• Provide controls over the allocation of resources between the housing sector and other sectors of the
• Stimulate the adoption of realistic designs for the construction of
• Facilitate the flow of domestic and international resource into the priority housing areas such as low- income

2.0    AN OVERVIEW OF HOUSING FINANCE SYSTEM IN NIGERIA

The business of mortgage banking began in Nigeria, following the establishment of the Nigeria Building Society in 1956 with sole aim of providing fund for home ownership in Nigeria. The Building Society later metamorphosed into Federal Mortgage Bank of Nigeria following the enactment of Decree No 7 of 1977 with initial authorized capital of N20 million, which was later increased to N150 millions in 1980. The Federal Mortgage Bank has among its objectives namely:

• Provision of long-term facilities to mortgage institutions in the country at such rates and upon such term as may be determined by board in accordance with the policy directed by the federal executive council being rates and terms designed to enable the mortgage institutions to grant comparable facilities to Nigerian individuals desiring to acquire house of their
• The arrangement and promotion of the development of
• The provision of long-term credit facilities directly to Nigerian individuals at such rates and upon such term as may be determined by the board in accordance with the policy directed by the federal executive
• Accept deposit and savings from mortgage institution, trust fund, post office and private individuals as the board may determine.
• The supervision and control if the activities of mortgage institutions in Nigeria in accordance with such directives as may be given in that behalf by the federal executive council
• The provision with the approval of commissioner at competitive rates of interest of credit facilities to commercial developers of estate and other specialized types of buildings.

The transitional period of transforming Nigerian Building Societies to the FMBN witnessed the management of the bank in the hands of a firm of foreign consultants. Brenshort Moret Bosboom (BMB) of Holland with three years contracts running from July 1977 to June 1980 to among other things recognized and operates the bank. Practically, all effective decision making process were controlled by the BMB team which constituted itself into a “Management Board” in the absence of a Board of Directors.

With due regard to the magnitude of problem inherited from the Nigerian Building Society it is evident that the management team was not able to properly define its priorities for the transition of the institution from a building society that specialized in Mortgage administration to a mortgage bank that combines both mortgage bank and administration together. Responding to this failure, the Federal Government is a couple of years back initiated an interesting development in the history of mortgage banking and housing delivery in Nigeria viz: the National Housing Policy. The thrust of the policy is to ensure that all Nigerians own or at least have access to some decent accommodation at affordable cost by the year 2000. The policy’s centerpiece is predicated on two major instruments, to achieve the objective. One is the establishment of a two-tier institutional structure (FMBN and PMI’s) and the other is the institution of a pool of fund (National Housing Fund). Within the context of this policy, the Mortgage Institution Decree

No. 53 of 1989 was promulgated to provide the regulatory framework for the establishment and operation of Primary Mortgage Institution (PMI’s) by private enterprise with FMBN as the apex institution. Under this arrangement, the PMI”s are to mobilize capital funds into primary mortgage market through the National Housing Funds, which is a mandatory contribution scheme to provide a pool of cheap, and loanable long-term fund. The aim of this provides combined measure is to encourage a multiplication of housing finance institutions and growth of long-term funds and to make loans affordable to the borrowers.

The practicability of the measure is that savings mobilized by the PMI’s would be augmented by the resources of the fund to induce an expansion of lending services. The overall objective is therefore to insulate the housing finance system from fluctuations that had characterized its past reliance on government intervention. This is consistent with the practice in other countries especially as sustainable housing finance operation requires mobilization of both the public and private sectors for the delivery services.

3.0      THE PRIMARY MORTGAGE INSTITUTIONS (PMIs)

The PMIs are the second of the five (5) major players in the fields of home ownership through Mortgage Financing. The Primary Mortgage Institutions are the vessels for transportation and delivery of the fund entitlement to the end users (i.e. house-owner Mortgagors). The law governing the carrying on of Mortgage transaction in Nigeria is mortgage decree (No. 53) 1989, section 2, Decree 53, 1989 vests the Federal Honourable Minister, the licensing of companies who want to carryout Mortgage Banking business and thus:

“2 – (1) if any company is desirous of carrying on Mortgage business in Nigeria, it shall apply in writing through the Federal Mortgage Bank to the minister of the grant of a license …” subject to the provision of sections 2(2) to (7) of Decree 53, 1989.

Therefore, the Mortgage Institutions Decree of 29^th December 1989, made provisions for the establishment and licensing of mortgage institutions to grant loan and advances to individuals for the purchase or construction of a dwelling housing, improvement or extension of an existing dwelling house and to accept savings and deposits from members of the public and to pay interest thereon. Therefore, Decree No. 53 of 1989 ushered in the era of Mortgage Bankers. Every building became Bankers on it, every flashy car had the inscription ‘Mortgage Bankers’ on it, and every well-dressed smart operator became a Mortgage Banker.  It was the in-thing.

The FMBN sanitized the system by revoking the operating licenses of 99 (33.7979% out of the 293 of those that it had earlier granted licenses. As a show of its current efficiency against the background of the history of earlier inadequacies in the approval system, which culminated in the distress of the PMIs The FMBN as at October 2000 adjudged 57 to be eligible to participate in the assessing of the National Housing Fund on the basis of criteria and indicators of performance among which are:

• capital adequacy,
• sound management,
• good corporate citizenship,
• maintenance of positive shareholders funds,
• assets quality, and
• investment

With all these assessing and reassessing, it now appeared that the stage was now set for the fulfillment of the practical objective of the fund, the assessing of the NHF by the PMI’s for home ownership through mortgage.

In the budget speech of January 1997 made the PMIs answerable to the Central Bank of Nigeria and consequently diverts FMBN of its hitherto supervisory power over the PMIs. The effect of this is that the Central Bank of Nigeria supervises the PMIs in the matter of financial accountability and the FMBN supervises the PMIs in the assessment of the National Housing Fund (Fortune Ebie, 1998). The difficulty is increased by the facts that:

• the legal instrument for the appointment of functions between CBN and FMBN have not been put in place since the budget speech of 1997;
• the coordination between the Central Bank of Nigeria and FMBN that would lead to less confusion has not become manifest to outside observe; and
• the unnecessary increase in paper work by the Central Bank demanding monthly returns should be modified in the light of the operations of the PMIs

In the light of these foregoing, the issue of the hydra-headed nature of the supervision of the PMIs ought to be quickly resolved to avert further operational problems. The preference would have been for the Federal Mortgage Bank of Nigeria to be under the Ministry of Finance and not under the Ministry of Works and Housing.

Terms and conditions for obtaining loan under the National Housing Fund

Obtaining loans from the National Housing Fund by the PMI’s and individual contributors are guided by some regulations in order to ensure sanity in the system and to guide against the scheme being exploited for selfish purposes. The regulations also aim at forestalling a repeat of past mistakes, which frustrated past efforts of the government in alleviating housing problems. To this end, Minister of Works and Housing, on March 5, 1996 signed into law certain regulations which were set out in clear terms, in accordance with the aims and objectives of the National Housing Fund scheme of 1992. Excerpts from this regulation are as follows:

a)      Terms and condition for obtaining NHF loans by the Primary Mortgage Institutions

Method of application: Under the method of application, a Mortgage Institute seeking a loan from the Fund shall apply to the FMBN. As a rule, no Mortgage Institution, shall, in any given year, be granted an amount more than 50% of his shareholder’s fund.

Security for the loan: A loan granted to a mortgage institution under the Decree shall be secured by a block of existing Mortgage previously granted by the Mortgage Institution, which shall have been created by the Mortgage Institution with or without financing from the fund. A mortgage institution shall at the same time requesting for a loan, execute the Bank a sales and Administration agreement and Deed of Assignment in such forms as may be prescribed by the Bank, from time to time, stamped and registered in the lands Registry. Where a waiver is not given, the Mortgage Institution shall bear the cost of stamping and registration at the lands registry. The Bank may require a Mortgage Institution execute a floating charge over its assets.

Disbursement conditions: Conditions are set to safeguard the resources of the fund and prevent misallocation or diversion of loan.  The Federal Mortgage Bank of Nigeria shall:

• Make disbursement to a Mortgage Institution on presentation of an acceptable security as stipulated in regulation 2 of these
• Demand the immediate repayment of the loan with interest there on and payment of a penalty of 200 percent of the interest differential which misallocates or diverts its
• Suspend the Mortgage Institution from further borrowing from the fund for a period of six months and cause it to remain suspended until it complies with (1) (b) of this regulation and thereafter for a further period of six
• Loans to a Mortgage Institution shall be released in accordance with disbursement plans agreed between the Bank and the Mortgage
• All disbursement from the fund shall be by-cheque or any other acceptable instrument of
• The Bank shall, for services rendered in granting a loan to a Mortgage Institution, charge not more than 0.25 percent of the loan which shall include legal survey and administrative charges but shall exclude stamping, registration and other statutory fees.

Repayment

• A mortgage institution shall repay monthly to the bank, a loan granted the decree whether or not the Mortgage institution collects repayments from
• A loan granted from the fund to a Mortgage Institution shall be repayable over a maximum period of 25
• Interest rates shall be as prescribed by the National Housing Fund Decree 1992
• A Mortgage Institution, which is in default of repayment for a period of 3 months, shall be refused further access to the

b)     Terms and conditions for obtaining NHF loan by individual contributors Method of application and qualification to borrow

• A prospective borrower from the fund shall apply in such forms as maybe prescribed by the bank to a duly licensed Mortgage
• The prospective borrower shall be a contributor to the fund and shall have contributed for a period of not less than six months.
• The borrower shall be required to have a stable employment and shall show good prospect of continued employment, and in the case of a self employed person or non-salary earner, satisfactory evidence of regular flow shall be
• Not more than 1/3 of the income of the borrower shall be considered for a loan repayment. No individual shall quality to borrow more then once from the

Extent of loan: The loan ceiling from the Fund to an individual borrower has just been raised from N500,000 to N1.5 million. The review of the loan ceiling would be done by the Minister from time to time, to reflect the economic realities of the given situation. The loan to be granted to an individual shall not exceed 90 percent of the cost or value of the property to be mortgaged, whichever is lower, and of this loan, eighty percent (80%) shall be provided by the fund and 20% by the mortgage institution.

Security for the loan

• A loan granted under the fund shall be a residential
• There shall be a legal report by the Bank on the acceptability or otherwise of the
• The mortgage deed shall be required to be stamped and registered at the lands
• Where a waiver is not given, the borrower shall bear the cost of sampling and registration at the lands
• The property shall conform to the existing planning laws and regulations
• The property shall possess sufficient value of the recover the
• In the case of property under construction, the cost of completion of outstanding works shall be required to be
• A mortgage property shall be insured against

Disbursement conditions

• No loan shall be made for refinancing
• A loan under the fund shall be for the purpose of building, purchasing of renovating a residential
• To avoid misuse of the loan disbursement, the mortgage institution shall ensure that:
  • In the case if an outright purchase, payment is made lump sum
  • In the case of a building under construction, improvement or restructuring, the loan disbursement shall be on schedule to be agreed with the reported to the
  • All disbursements shall be made by crossed co-cheques, marked account payee
  • Mortgage institution shall, for services rendered in granting a loan to an individual, charge a fee not more than 0.5 percent of the loan, which shall include legal, survey and administrative charges but shall exclude stamping registration and other statutory

Repayment

• A loan granted by a mortgage institution shall be repayable over a maximum period of 25
• Interest rates shall be as prescribed by the National Housing Fund Decree
• Loans recovery shall be by monthly installments as may be agreed by the borrower and the mortgage

Operational problems of PMI’s

• Recalcitrant organization: The issue of recalcitrant organization continued to be a thorn in the flesh of the Bank right from the time the National Housing Fund decree promulgated. Various organizations including some Federal Government owned parastatals, some State Government parastatals and Extra Ministerial Department as well as much Local Government have to date remained recalcitrant. In addition, workers in the employment of Rivers, Bayelsa and Edo State Governments are yet to join the NHF The management of the bank is employing different measures raging from official visits, recourse to the Federal Ministry of Works and Housing for intervention and treat of legal action to effect compliance. Although, it is hoped the resistance will be eventually overcome, the bank’s effort are being blunted by the weakness of the provisions in the Decree on defaulters. Under the current legislation, sanctions can only be invoked on conviction by the courts; but then a court action can be initiated only with approval of the Federal Ministry of Justice prosecution by the police thereby making the procedure long and cumbersome. This informed the proposed amendment to the Decree by the Federal Mortgage Bank of Nigeria (FMBN) to allow the bank either directly prosecute offenders or through its solicitors. The proposed amendment is awaiting promulgation by government.
• Stoppage of NHF deductions by some state governments: The following state governments have authorized stoppage of deduction from the salaries of their employees: Delta, Oyo, Ogun, Osn, Ekiti, Borno, Plateau, Gombe and Kogi. The Managing Director visited the Governors of some of them and wrote to ask all of them pointing out the inappropriateness of their action and advising a re-consideration (FMBN, 2000). In the same vein, individual contributors are now found to be withdrawing from the scheme, though mainly due to retirement from paid employment and as at August 2000, over N12m have been refunded by the FMBN to these
• Non-compliance with NHF Decree by bank and insurance companies: Commercial and Merchant Banks as well as insurance companies are yet to relent in their refusal to invest in the Fund as required by the Decree. This is despite a number of representations made by FMBN. However, the bank had held a very useful discussion with the Central Bank of Nigeria (CBN) and the Nigeria Insurance Commission (NIC). Supervisors of the banks and Insurance companies respectively – on the way forward.
• Non-existence of PMI’s in the states: As the NHF loan can only be accessed and disbursed through PMI’s, the operations of the bank and the aspirations of prospective borrowers are hampered and frustrated by the inadequacy of PMI’s and their poor spread. Only 15 states own PMIs Awhile private ones are concentrated in Lagos and have presence in only a few towns, so, far easy access NHF facility there should be at least one PMI in each State Capital and major population The list of state – owned Primary Mortgage Institution is as follows:

List of state owned Primary Mortgage Institutions (PMI’s)

S/N	STATE	PRIMARY MORTGAGE INSTITUTIONS
1.	Akwa Ibom	Aideasbane Savings and Loans Limited
2.	Anambra	Anambra Homes Ownership Co. Limited
3.	F.C.T	Aso Savings and Loans Limited
4.	Benue	Benhouse Building Society Limited
5.	Kogi	Confluence Savings and Loans Limited
6.	Kano	Dala Building Society Limited
7.	Kwara	First Mainland Mortgage Finance Limited
8.	Delta	Delta Building Society Co. Limited
9.	Imo	Imo State Building Society Limited
10.	Kebbi	Kebbi State Home Savings and Loans
11.	Lagos	Lagos Buildings Investment Co. Limited
12.	Osun	Living Springs Savings and Loans Limited
13.	Sokoto	Sakkwato Savings and Loans Limited
14.	Bauchi	Yankari Savings and Loans Limited
15.	Jigawa	Jigawa Savings and Loans Limited.

Source: Federal Mortgage Bank of Nigeria (2000)

4.0      THE CHALLENGES OF HOUSING FINANCE IN NIGERIA

The study indicates that housing delivery in Nigeria has not been improved through the effort as the mortgage institutions despite their impressive performances; this is because of the limited number of primary mortgage institutions coupled with their limited geographical spread. In addition to this are the factors militating against their operation, which include stringent application requirements, poor image problem and difficulty of land acquisition among others. Some of these problems, which have so far hampered the operation and the effectiveness of the PMIs, are outlined below:

• Motivation of depositors: The procedures for attracting customers was based on commercial and merchant rules which is not applied to property investment because of the nature of housing investment which makes it impossible to use short-term deposit for long-term
• The recent entrants of primary mortgage institutions to the financial market coupled with their insufficient numbers and limited geographical spread, limits the amount of beneficiaries to the new housing finances system. Our study shows that only 598 people have so far benefited in the scheme as at January
• Low per capita income: Another problem militating against mobilization of funds for housing in Nigeria is that majority of the populace is low-income earners which account for low the amount of deposit so far. Studies showed that only N5,689,352,007 was saved under the scheme between 1992 and year 2000 by as many as over 1.7m contributors nationwide. It is regrettable that since high percentage of the urban population is made up of low income group, the prevailing prohibitive cost of land acquisition, construction cost, high interest rate and inflation; all combined to reduced the real income of the average Nigerian to a mere remnant.
• Poor image problem: Following the widespread collapse of many of the PMI’s in the early 90’s immediately after the promulgation of the Decree posed a major credibility in the mobilization of savings and deposit. Immediately after the promulgation of the Decree, 29 PMIs were licensed but presently 57 of them have so far been certified for an access to the NHF scheme. This singular factor has negatively affected the public confidence in the PMIs and has made them to be conscious of where to save their money, hence reduced their deposits and savings in them.
• Lack of professionals to assess and advice on property investment: Since property development and investment require special skills and knowledge for its investment analysis and management which can adequately be handle by estate surveyors and valuers who is trained in this field. In addition, they are trained to determine value or worth of property for different purposes be it for sale, purchase mortgage etc, engage in property management and development and can also establish the feasibility and viability of project among several other functions. He can therefore protect the housing However, most of the mortgage institutions are full of bankers and accountants who does not have some knowledge of property investment analysis, hence result in the total failure and liquidation of a good number of the PMIs. Part of research study showed that as many as ninety-nine (99) out of the two hundred and ninety-three (293) licensed between July 1991 and July 1999 have had their license revoked.

This study revealed that the PMIs have limited scope of operations, as they are restricted to only mortgage lending and savings mobilizations. This limitation by the enabling law does not encourage product diversification into housing related ventures such as direct construction of houses, mortgage, insurance and other investments which are known to be profitable and supportive of mortgage business. Very often regulatory authorities acting without consultations with field operators issue rules and regulations which create difficulties in their practical implementation.

• High cost of mortgage transactions including the payment of stamp duty and registration fees: It was equally observed that individual borrowers stake in the tripartite arrangement between himself, the PMI’s and FMBN is very low-presently a mere 10% while the PMI’s and FMBN is requires by law to contribute 18% and 72% There is therefore not enough commitment on the part of the borrowers because of their minimal stake in the whole arrangement creates very serious administrative problems for the PMI’s since they will have to repay the loan to the CBN out of their savings privately sourced whether the borrower pays back or not.

The study has equally established that government together with the primary mortgage institutions should make effort in realizing the goal of National Housing Policy through suggestion offered by the respondents on the way forward. This include public enlightenment programmes, streamlining to NHF loan requirements, investing in building materials, direct construction and reduction of land acquisition processing fees and reduction of interest rate of attract customers.

5.0  RECOMMENDATIONS

To summarize this study, one has been able to establish the importance of housing to the economy as well as the facilities existing within the country. As it has been established, housing development within this present situation is still far from its demands because most Nigerians have not achieved their aims of home ownership. Housing development goes beyond financing alone, though it forms major part of the work; project that is being financed without adequate supervision might not bring an expected result.

In recent past, the Mortgage Banks Association of Nigeria (MBAN) has made several suggestions aimed at solving housing finance problem in Nigeria among which are:

• Ease of acquisition of land for housing development by the Government
• Ease of transfer or mortgage of real estate
• Moderation of cost of acquiring transferred mortgages
• Reduction in consent fee and processing period
• Effective implementation of housing policy putting into consideration the need of the lower

Other suggestions being advanced towards alleviating the problems of Primary Mortgage Institutions thereby ensuring better performances are:

• The Government through the Central Bank of Nigeria can ease lending policies in order to increase the credit expansion of Primary Mortgage Institutions hence; more borrowers will have access to housing credit. In addition, the CBN guidelines, which stipulate that Banks should lend a percentage of their advances to the housing sector, should be enforced. Government should set the machinery in motion to make sure that the Banks comply with these guidelines
• Mortgage Institutions should be diligent in accepting collateral securities for Mortgage transactions in order to avoid getting into problems
• The major thing responsible for the high cost of building materials is the use of imported The Federal Government can prevent this by enacting a law imposing excessive tenement rate on houses built of imported materials while tax relief could be given to home owners with local building materials. This will make us improve our own locally made materials. Government and private investors should therefore see to the survival of various building materials producing companies such as cement, iron steel and wood products by ensuring resuscitation, of existing plants, modernizing and refurbishing them in addition to establishing new ones and giving them adequate attention in the next millennium. Furthermore, government should allow primary mortgage institutions to invest in the production of local building materials industry to further enhance increase in housing stock.
• Government’s yearly allocation for housing could be giving to the FMBN on soft terms to enable them lend same to individuals through the PMI’s instead of using them to build houses which nobody occupies because of their high rental and capital values
• Primary Mortgage Institutions should be more directly involved in housing development by way of direct construction of housing units for sale to their employees and/or selling same to the public at reduce price.
• The timing and the decision making process/disbursement should be reduced as unnecessary delay make a viable project turn ‘sour’ due to inflation and economic/monetary policy of the Government.
• The PMI’s could be made to assist the FMBN in the collection of the National Housing Fund contributions from This will enhance efficiency, encourage funds mobilization and will equally ensure prompt remittance of the collected funds to the FMBN within the stipulated period for remittances.
• Relevant laws to be amended to grant waiver to mortgage instruments lodge with the Commissioner of stamp duties and the Land Registry in any of the State of the Federation and Abuja
• The tripartite arrangement as it exists now should be reviewed such that the borrower contribute 20% which the FMBN contributes the remaining 80% while the PMI’s should be allowed to invest their privately mobilized savings in other aspects of the housing sector.
• The NHF based should be enlarged (really N5b is pittance) via employer contribution, corporate tax (via Education Tax), and compulsory fund placement by NSPIF, stock/loan/debenture backed by CBN/FGN to the public also.
• The PMIs should employ qualified professionals to assist them in both monitoring of the loan and assessment of collateral security for the loan and they should join hand with FMBN to reach to customers towards educating them on the importance and benefit awaiting the contributors to the National Housing Fund Scheme.
• Reduction of interest rate on the borrowed funds to encourage more Nigerians to apply for loans under the Housing Fund Scheme as the interest rate regime impacts greatly on viability of loan facilities.
• Government should encourage more research on local building materials through injection of und to research institutes like Nigeria Building Road and Research Institute (NBRRI) who has currently established that 3 bedroom bungalow constructed with locally building materials cost N760,000 as against N1.5 million of building made of imported materials.
• Section 7 of the Mortgage Institution Act which prohibits mortgage institutions from direct involvement in real estate development and funding manufacturer and importation of building materials or project refinancing should be reviewed to widen the scope of business of PMI’s. Federal Mortgage Bank of Nigeria (FMBN) should also streamline their requirement for the application of loans by primary mortgage institution to enable them secure more loans to customers and encourage more participation.
• Government should also streamline procedures for land acquisition to enable contributors of the National Housing Fund secure loans to build house of their own hence reducing housing problem.

6.0 CONCLUSION

In this millennium, government must reposition all its strategies and evolve a new institutional framework that would lead to the development of a very viable mortgage finance system. There should be no further delay in the disbursement of the National Housing Fund through the primary mortgage institutions. The problem associated with accessing the fund should also be eradicated and effort should be redoubled to ensure that more funds that are loanable are made available to the pool for onward disbursement to the contributors. Besides, government should reduce the interest rate charge by PMI’s so as to make the loan more affordable and more people would be able to build their own houses directly without having to wait for government houses. While advising the Federal Mortgage Bank of Nigeria to remove all constraints and streamline the requirements for loan approval, sound management and fund mobilization would play a very crucial role in increasing the housing stock with the effort of mortgage institutions.

Finally, it is very necessary to accord housing sector a high priority in the allocation of our economic resources by our primary mortgage institution because this study has established that a wide gap exist between the demand and supply of funds for housing financing. Therefore, the roles and contribution so far made by these primary mortgage institutions need to be expanded and improved upon for them to creditably perform their expected functions, which include granting of loan and credit facilities.

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Omuojine, Emma O. (2000). Evolving on paradigm for housing the low-income workers in a stagflation environment: Nigeria case study, the Estate Survey Valuer: NIEVS Journal, Vol. 23 No. 4 of January 2000.

Onibokun, Poju (1985). Housing in Nigeria (A book of readings). Ibadan: NISER.

Primary Mortgage Institution Operation. Suggestion for improvement memorandum/position. Paper submitted to FMBN on 28 February 1997.

Thorncroft, Michael (1976). Principles of estate management. London: Estate Gazette Ltd. Union Homes, Saving & Loans Limited (1999). Annual Report.

Windapo, A. O. (2000). Strategies for effective implementation of the National Housing Fund – a Builder’s perspective, Shelter Watch Vol. 001 of March 2000.

APPENDIX VI

NATIONAL HOUSING FUND DECREE 1992

TERMS AND CONDITIONS FOR OBTAINING LOANS FROM THE NATIONAL CONTRIBUTORS RELATIONS 1996

Commencement

In exercise of the power conferred upon me by section 14 (3) of the National Housing Fund Decree 1992 and of all other powers enabling me in Minister Of Works And Housing hereby make the following regulations:

PART I – TERMS AND CONDITIONS FOR OBTAINING NATIONAL HOUSING FUND LOANS BY MORTGAGE INSTITUTIONS

1. (a) Mortgage Institution seeking a loan from the Fund shall apply to the Bank.

(b)The Mortgage Institution shall submit its loan application to the Bank in conjunction with applications received for loans from individual contributors as a basis for the extent of facility requested from the Fund against which the loan shall be

(c) No Mortgage Institution shall, in any given year, be granted an amount more than 50 per cent of its shareholders’

2. (a) A loan granted to a Mortgage Institution under the Decree shall be secured by a block of existing mortgages previously granted by the Mortgage Institution which shall have been created by the Mortgage Institution with or without financing from the Fund.

(b) A Mortgage Institution shall, at the same time requesting for a loan, execute with the Bank a Sales and Administration Agreement and Deed of Assignment in such forms as may be prescribed by the Bank, from time to time, stamped and registered in the Land Registry.

(c) Where a waiver is not given, the Mortgage Institution shall bear the cost of stamping and registration at the Lands Registry.

(d) The Bank may require a Mortgage Institution to execute a floating charge over its

3. (a)  To safeguard the resources of the Fund and prevent misallocation or diversion of loans, the Bank shall

• make disbursement to a Mortgage Institution on presentation of an acceptable security as stipulated in regulation 2 of these Regulations;
• demand the immediate repayment of the loan with interest thereon and payment of a penalty of 200 per cent of the interest differential between the market rate and the Fund rate from a Mortgage Institution which misallocates or diverts its loan;
• suspend the Mortgage Institution from further borrowing from the Fund for a period of six months and cause it to remain suspended until it complies with the provisions of paragraph (1) (b) of this regulation and thereafter for a further period of six months.
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(b) Loans to a Mortgage Institution shall be released in accordance with disbursement plans agreed between the Bank and the Mortgage Institution.

(c) All disbursements from the Fund shall be by cheque or any other acceptable instrument of settlement.

4. (a) A Mortgage Institution shall repay monthly, to the Bank, a loan granted under the Decree whether or not repayments are collected from borrowers by the Mortgage Institution.

(b) A loan granted from the Fund to a Mortgage Institution shall be repayable over a maximum period of 25 years.

(c) Interest rates shall be as prescribed by the National Housing Fund Decree 1992.

(d) A Mortgage Institution, which is in default, or repayment for a period of 3 months shall be refused further access to the Fund.

PART II – TERMS AND CONDITIONS FOR OBTAINING NATIONAL HOUSING FUND LOAN BY INDIVIDUAL CONTRIBUTORS

5 (a) A prospective borrower from the Fund shall apply in such form as may be prescribed by the Bank to a duly licensed Mortgage Institution.

Provided that the applicant for the loan shall be a contributor to the Fund and shall have contributed for a period of not less than six months.

(b) A borrower shall be required to have a stable employment and shall show good prospect of continued employment and, in the case of a self employed person or non-salary earner, satisfactory evidence of regular flow of income shall be required.

(c) Not more than ¹/₃ of the income of the borrower shall be considered for a loan

(d) No individual shall qualify to borrow more than once from the Fund.

6. (a)  The loan ceiling from the Fund to an individual borrower shall be N500,000 or such other sum as the Minister may, from time to time, prescribe.

(b) The loan to be granted to an individual shall not exceed 90 per cent of the cost of value of the property to be mortgaged, whichever is lower; and of this loan, 80 per cent shall be provided by the Fund and 20 per cent by the Mortgage Institution.

7. (a) A loan granted under the Fund shall be secured by a first legal mortgage of the property, which shall be a residential accommodation.

(b) There shall be a legal report by the Bank on the acceptability or otherwise of the title.

(c) The mortgage deed shall be required to be stamped and registered at the Lands Registry.

(d) Where a waiver is not given, the borrower shall bear the cost of stamping and registration at the Lands Registry.

(e) The property shall conform to the existing planning laws and regulations.

(f) The property shall posses sufficient value to recover the loan

(g) In the case of property under construction, the cost of completion of outstanding works shall be required to be specified.

(h) A mortgaged property shall be insured against hazards.

8. (a) No loan shall be made for

(b) A loan under the Fund shall be for the purpose of building, purchasing or renovating a residential

(c) To avoid misuse of the loan disbursement the Mortgage Institution shall ensure that:

• in the case of an outright purchase, payment is made in lump-sum;
• in the case of a building under construction, improvement or restructuring, the loan disbursement shall be on a schedule to be agreed with the Mortgage Institution;
• a loan granted but not disbursed within 2 months shall be reported to the Bank; and
• all disbursements shall be made by crossed cheques, marked “account payee only”.

(d) Mortgage Institutions shall, for services rendered in granting a loan to an individual, charge a fee not more than 0.5 per cent of the loan which shall include legal, survey and administrative charges but shall exclude stamping registration and other statutory fees.

9. (a) A loan granted by a Mortgage Institution shall be repayable over a maximum period of 25 years.

(b) Interest rates shall be as prescribed by the National Housing Fund Decree 1992.

(c) Loan recovery shall be by monthly installments as may be agreed by the borrower and the Mortgage Institution.

10. These Regulations may be cited as the Terms and Conditions for Obtaining Loans from the National Housing Fund by Mortgage Institution and Individual Contributors Regulations 1996.

Dated at Lagos this 5^th day of March 1996

MAJOR-GENERAL ABDULKARIM ALABI ADISA,

Minister of Works and Housing