Against the backdrop of the dwindling fortunes of some primary mortgage institutions (PMIs) as primary lenders to housing development, the Central Bank of Nigeria (CBN) is considering a Mortgage Liquidity Facility (MLF)/Mortgage Refinancing Company (MRC) for the mortgage sector of the financial system.
MLF/MRC is a financial institution designed to support long term lending activities by primary mortgage lenders by proving cheaper source of funds.
The purpose of such a facility is to rebuild confidence in the mortgage market; enable a more diversified set of lenders to develop, and also to help them to narrow the gaps between the maturity structure of the housing loans and the source of funds.
Femi Fabamwo, Director, Other Financial Institutions Department (OFID), CBN, who disclosed this in a paper he presented at the Housing Finance and Investment Conference and Exhibition (HOFEX) organised by the Mortgage Banking Association of Nigeria (MBAN) in Lagos, listed other benefits of MLF as including providing financial resources to enable primary lenders to grant more loans at fixed rates and for longer tenures.
Others benefits of the facility include providing an interim step which connects capital markets to the mortgage markets with limited complexity or transfers of risk, and using it to deliver policy objectives such as the promotion of affordable housing.
Fabamwo, who represented Sanusi Lamido Sanusi, the CBN governor, at the event, revealed that the objective of the facility is to provide long term funds at better rates and under better terms and conditions than primary mortgage lenders might be able to obtain if acting alone, hoping that this would promote the capital market through issuing medium and long-term bonds.
According to him, the facility is intended to act as an intermediary between primary mortgage lenders and the bond market, and also provide temporary liquidity support to lenders through collateralised short term operations such as repurchase agreements.
“The MLF is a catalytic tool that does not need a fully developed primary market with the history required to value securities (like securitisation); this is because the bonds issued by the facility are not directly linked to the mortgages, meaning that a bond issuance can go ahead at any time, without the need for a warehoused portfolio of mortgages”, he further disclosed.
The OFID director informed that the proposed MLF/ MRC would be a specialized second-tier institution that would provide short-term liquidity, long-term funding or guarantees to mortgage originators and housing finance lenders, adding: “It will provide liquidity relief to mortgage originators and primary lenders, and re-build market confidence by making available securities that are well secured, simple to value and potentially liquid”.
The importance of MLF, Fabamwo said, is that it would serve as catalyst for the development of the secondary mortgage market and a precursor for securitization, adding that it would also issue bonds in order to raise long-term capital, and purchase loans with recourse or receive assignment of mortgages/ loans, acting as intermediary between lenders and the capital market.
