The Federal Mortgage Bank of Nigeria: An Overview

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. An estimated 80% of Nigerians live in indecent, informal housing structures with no basic amenities and in deplorable conditions. Only few own the house that they live in.

With a huge housing deficit estimated at about 17 million units, 800,000 housing units are required yearly to meet MGD goal on housing while housing production is at approximately 100,000 units per year with an estimated mortgage financing gap of over 56 trillion naira. Nigeria has a low home ownership rate of 25% which is about the lowest in Africa yet her population stands at 178.5 million, this makes  Nigeria the 7th most populous country in the world currently. Our home ownership rate is an absurdity as compared to Singapore (90%), Indonesia (84%), Kenya (73%), USA (70%), Benin Republic (63%) and South Africa (56%).

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. The housing and construction sector account for only 3.1% of Nigeria’s rebased GDP.

Real estate sector contribution to GDP has stagnated over time while real estate sector growth has under-performed real growth and non-oil growth rates.

The Federal Mortgage Bank of Nigeria (FMBN) which was established in 1956, known then as the Nigerian Building Society (NBS), a joint venture of the Commonwealth Development Corporation and the Federal and Eastern Governments of Nigeria is saddled with the responsiblity of tackling or alleviate some issues inherent in the Nigerian housing sector in the area of housing finance

FMBN operates as an effective vehicle for increasing the mobilisation of long-term funds, lending volume and expansion of mortgage lending services to all segments of the Nigerian population.

FMBN started the management and administration of the contributory savings scheme known as the National Housing Fund (NHF) established by Act 3 of 1992. The NHF is a pool that mobilizes long-term funds from Nigerian workers, banks, insurance companies and the Federal Government to advance loans at soft interest rates to its contributors.

Under the reform of the housing sector based on the FGs 2002/2006 National Policy on Housing and Urban Development, the FMBN was restructured into a Federal Government-Sponsored Enterprise (FGSE) with more focus on secondary mortgage and capital market functions. It plays the critical role of developing a robust mortgage finance system for the country. To meet its mandate, the FMBN has shifted operational emphasis to expand its functions from only social housing on-lending under the NHF to include commercial on lending for housing, commercial mortgages refinancing, mortgage purchasing and warehousing and Mortgage-Backed Securitisation.

Hence FMBN is aligned to;

– Encourage the emergence and growth of a viable secondary mortgage market to service the needs of housing delivery in Nigeria

– 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)

– Mobilize domestic and foreign funds into the housing finance sub-sector

– Collect and manage the National Housing Fund (NHF) in accordance with the NHF law

– Encourage the growth of a viable secondary mortgage market in Nigeria

– 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). It is recognized as an issuer of mortgage-backed instruments by the Federal Government of Nigeria. FMBN is recognised as a first-choice investment conduit by foreign investors and explores opportunities of issuing debt instruments in local and international capital market in collaboration with international financial institutions. Investor profile include global banks, international investment firms, conglomerates, foreign housing corporations, etc. There is a growing willingness to expand access channels to NHF mortgage originations e.g. PFAs, insurance companies, MFBs

FMBN strategic focus and plan includes;

– Consolidating on capital market activities

– 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

– using capital market resources applied as market-determined, risk-based priced loans

– Expanding mortgage financing to non-salaried informal sector

– 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

Service delivery channels are trade groups, unions and housing cooperatives, micro-finance institutions. FMBN is strategically advantaged as an 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

In summary, under these mandates it finances mortgages created by primary mortgage institutions (PMI) under the National Housing Fund Scheme and also gives estate development loans (EDL) to real estate developers.

To put simply, the bank’s overall mandate is to promote the delivery of affordable and modern houses to Nigerians.