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As the global financial crisis continues to dominate discussions on the global economy, Anthony Owuye, an economist and  mortgage banker, analyses the crisis and suggests safeguards for the nation’s mortgage banks in this chat with Chuka Uroko.
Before the bubble burst Americans did not  know in the last  few years of Bill  Clinton’s administration, with its welfarist economy, that not everybody could own a home. This was because the mortgage finance line was so available and so cheap. The mortgage brokers were smiling to the banks. They were providing everybody with a line of mortgage. That was why, for a property worth $300,000, they were getting for their clients $500,000 mortgage facilities. 
When the boom was on and the demand for property was high, there was no problem. Properties appreciated in value such that the money the brokers got for the clients over and above the value of the property was not a threat to the mortgage lender. 
 This continued until a survey discovered that the real value of that property had dropped from $500,000 to $300,000 or even to $200,000. It got to a stage where even the borrower began to wonder why he must continue to service a loan of $500.000 when the property is now worth much less. That was what led to what is today called Toxic Acid in America. 
The Nigerian experience 
About three years ago, banks were asking people to take loans to buy their shares. Some of them would tell you to bring N50 million and collect N100 million on margin trading. This is what I have decided to call ‘sub-prime share loan’. 
People who ordinarily did not know what the capital market was all about became stock merchants. Everybody was buying shares, drawing down the value of money without knowing the fundamentals. 
When the CBN realised the danger in this, it made a pronouncement by withdrawing the margins from the banks. The moment that happened, the bubble burst. People were not buying because they could see the cash flow from the companies. 
I would say, therefore, that we are not likely to be affected by the crisis. We have our own local crisis. A few of our banks are exposed to foreign funds and the crisis may have effect on them, but I feel they have the capacity to contain that. 
 Likely impact on Nigerian mortgage 
Right now, it is not clear what impact the global meltdown can have on Nigeria, particularly as it concerns the creation of property and mortgages on them. Our level of mortgage is still negligible. The only way we can be affected is through the credit crunch.  
Domestic interest rate has risen, not as a result of the financial crisis, but as a function of domestic monetary policy adjustment. We have not been affected by the crisis because we are not really exposed to the world. In short, we are not fully part of the world. 
Immediately the crisis started, the Hedge Fund Managers who invested in the Nigerian capital market took their money away. Thank God for our robust foreign reserve. Because of that, we did not feel the impact much. 
In my own opinion, the only way we are affected is through our own problem which I have referred to as ‘sub-prime share loan’. That is what we are suffering from and not the global financial crisis.
Lessons from the crisis 
We now have a duty to make sure we do proper risk assessment in all our lending. We must not fall into the same fate befalling the capital market by creating a loan-to-value ratio that is not balanced. We must do a critical appraisal and get our papers properly documented. 
Not everybody would own a home at the end of the day. There has to be capacity for it. The money with which we will be financing the mortgage facility belongs to depositors and shareholders who must have their money back. It means that we must try to create quality mortgage that can service itself. 
Another lesson to learn is that the strength of an economy is anchored on its mortgage sector. What is happening in America and UK started from its mortgage crisis which goes to show that we cannot afford to be shady in our approach to mortgage