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BUSINESS DAY
C002D5556
Thursday 31 May 2018
MORTGAGE, FINANCE & DEVELOPMENT Making Mortgage Accessible to the Informal Sector (1)
…Basic Requirements
T
he success of the goal to bridge the estimated 17 million units housing gap in Nigeria, through well-structured and inclusive mortgage financing would depend, to a large extent, on the percentage of the informal sector that would be effectively captured in the mortgage net in the medium to long term. Estimated at 67.54 million of the 81.15 million workforce and accounting for about 60 percent of the country’s Gross Domestic Product (2017 figures), the huge size and potentials of the informal sector hold a significant promise for the delivery of affordable homes to a sizeable share of the Nigerian populace. However, the inadequacy of reliable frameworks for the formalization of activities within the informal economy has, for many years, restricted the sector’s access to major incentives, including mortgage, which are otherwise available and accessible within the structured economy. Expectedly, the launch in February 2018 of the Uniform Mortgage Underwriting Standards for the Informal Sector (“Underwriting Standards”), as the guideline for providing mortgage financing for operators within the largely unregulated sector, came as a much-awaited panacea for financial exclusion and antidote to the perennial challenge of restricted access to mortgaged-backed home ownership for millions of self-employed Nigerians, low-income households, and the Micro, Small and Medium Enterprises (MSME) in the country. This article reviews the Underwriting Standards and provides a detailed guide to accessing mortgage loans, for the operators in the informal sector of the Nigerian economy ELIGIBILITY AND PURPOSE OF LOAN As prescribed by the Underwriting Standards, only natural persons operating in the informal sector of the economy, who shall either be citizens or legal residents in Nigeria, are eligible borrowers. For nonNigerian residents, a valid visa and evidence of stay in the country for a minimum period of one year prior to application, as well as compliance with necessary/relevant Immigration Regulations, are required to be eligible for mortgage facilities. This shall also include a proof of immigration approval to reside in Nigeria for a period no less than the term of the mortgage repayment period, or three (3) years, as may be considered most appropriate by the mortgage lender. Notably, eligible natural persons can either be professionals or non-professionals who are selfemployed. They can also be owner/ managers and employees of micro and small enterprises who keep no formal records. In all cases, eligible borrowers shall not be less than 21 years of age and be no less than 10 years to the legal retirement age (or as may be determined by industry and/or regulatory guidelines) at the start of the mortgage. When disbursed, the mortgage loan can be used to purchase a Single Family Home or an apartment in
a multi-unit building. The loan can also be used in either financing a new purchase or refinancing an existing mortgage loan. It is important to note, however, that the property acquired through the mortgage loan shall be owner-occupied. Joint Borrowing is allowed under the Underwriting Standards. In the case of joint borrowers who are also a married couple, the income and expense obligations of both spouses shall be considered jointly in determining eligibility. Essentially, a spouse who does not serve as a joint-borrower is required to execute a separate agreement, waiving any right to block foreclosure, in the event of default on the part of the borrower-spouse to fulfill obligations arising from the transaction participating agreement. Where a borrower has multiple spouses/ partners, or in a recognized civil relationship, every spouse or partner resident in the property shall execute the aforementioned separate agreement for waiver of the right to block foreclosure. A borrower shall also be creditworthy by having reasonable minimum net-worth to qualify for mortgage loan. Therefore, to ascertain net-worth and credit worthiness, a borrower shall have been on the trade or business for at least a continuous period of 36 months in the same industry, within the informal sector, supported with operational and/or financial statements of account in respect of the business enterprise or activity of the borrower. DOCUMENTATION AND APPLICABLE FEES The Underwriting Standards prescribe minimum documentation for mortgage lending to informal sector players. This is essentially required to ascertain the credit-worthiness of mortgage applicants, establish good legal title to the connected property, and determine the qualification of certain class of borrowers (such as foreign nationals resident in Nigeria) to take mortgage loan. Acceptable documents that may be used in proving credit-worthiness, good legal title to property, and qualification of non-Nigerians include the following: Twelve (12) months payment receipts/invoices of at least three (3) utility bills, such as electricity bill; waste disposal bill; water bill; telephone bill; and rent etc. Letter of Reference – This can be obtained from an applicant’s trade association, suppliers or associates, as applicable. Notarized statement of adequate net-worth for the loan program Evidence and confirmation of satisfactory payment of dues or
subscription to approved trade associations or cooperatives, as applicable. Satisfactory school fees payment record for the applicant’s children/ dependents. Any other informal means that may be acceptable to the mortgage lender for verifying and ascertaining borrower’s credit-worthiness. This may include independent interviews of borrower’s family members, neighbors, colleagues in the office/ enterprise, for proper Know-YourCustomer (KYC) requirement. Information provided with issuing authorities can also be checked for reliability and accuracy. It must however be noted that a mortgage lender is required to obtain written authorization from a borrower, before contacting third parties for any information relating to the borrower. Acceptable title documents are those free from encumbrances. The type of acceptable title document for a particular property is determined by the mortgage lender in relation to the standards for the community in which the property is located Liability Surety Coverage is required to be provided by financier-participants, where title is not legally fully perfected. Title Perfection Duration Insurance Cover may be required by the Secondary Market Refinance Company, where a fully perfected title is not readily available. Valid immigration documents such as Visa, Resident Permit, and Work Permit etc. are required from borrowers, who are foreigners resident in Nigeria and working in the informal sector. There are applicable fees for mortgage lending processes payable by the borrowers. These fees include: Origination Fee – This is as specified by the Mortgage Banker’s Tariff. It should be noted that origination fee is separate and different from Principal and Interest, and is to be paid out of pocket by the borrower. Servicing Fee – This is a fee payable by borrowers to the mortgage lenders on an annual basis and it shall not exceed fifty basis points (0.5%) of the outstanding loan balance. Late Fees – This are charges payable by borrowers on payments received more than seven (7) days after they are due. GENERAL TERMS AND CONDITIONS Some of the general terms and conditions guiding mortgage loan in the informal sector of the econ-
omy, as contained in the Underwriting Standards, include the following: Borrowers’ Age – The minimum age of legal contract shall be 21 years and anyone below this mark shall not be qualified for taking mortgage loan. In like manner, the maximum age shall be ten (10) years to the borrower’s legal retirement age, or as may be determined by industry/regulatory guidelines. Loan Amount – The minimum loan amount shall be determined by the mortgage lender while the maximum loan amount shall be Fifty Million Naira (N50,000,000:00). Loan Tenor – The tenor of mortgage loan shall be minimum term of five (5) years to maturity and a maximum term of twenty (20) years to maturity. Loan Denomination – The disbursement of the mortgage loan by lenders and the repayment by borrowers shall both be in Naira. Minimum Down-payment – The Underwriting Standards prescribes minimum down-payments for different loan amounts. For property of less than N20 million in value, 25% down-payment is required; higher than N20 million but lower than N40 million, 30% down-payment is required; and higher than N40 million but lower than N50 million, 35% down-payment is required. However, the down-payment shall not be fulfilled through a loan from a third party, except under a regulator-approved Special Down Payment Assistance Programs (DPAP). The down-payment is also required to be sourced and seasoned in the bank account for at least thirty (30) days to ensure legal funds. Payment of Servicing & Late Fees – Applicable servicing fee shall be added to mortgage interest rate and origination fee and shall together be advertised by the mortgage lender as the mortgage
loan APR%. This shall then be payable by the borrower on a monthly frequency. For the Late Fee to be chargeable by the mortgage lender, all information on same shall be made available to the borrower before closing and the borrower’s consent obtained. Application of Title Perfection Duration Insurance – In cases where Title Perfection Duration Insurance is required, such shall be procured from insurance companies approved by the Secondary Market Refinance Company. Also, the Title Cover shall not exceed eighteen (18) months from closure of the mortgage. Where it exceeds this period, the mortgage lender shall substitute the mortgage loan with an equivalent loan with title or be required to post acceptable collateral. Tenure of Property – The tenure of the property shall be full ownership, or leasehold with a minimum of forty (40) years from the date the mortgage loan is originated. There are other basic terms specified in the Underwriting Standards for mortgage financing for the informal sector, relating to PENCOM compliance; permissible housing expense & total-debt ratios; security required; and insurance of property; which will be fully explained to prospective borrowers on request. Essentially, the Underwriting Standards make provisions for “Mortgage Counseling” and “Consumer Protection”, to ensure that borrowers are adequately educated and clearly informed about their duties and responsibilities under the mortgage loan program, during mortgage application process, and that borrowers’ information supplied to mortgage lenders in the process is protected in accordance with applicable CBN regulations. Mortgage, Finance & Development is an initiative of the Nigeria Mortgage Refinance Company (NMRC).
Over 15 countries set to converge at the 3rd ICC Africa Arbitration conference in Lagos
N
ot less than 500 participants representing about 15 countries will be present at the 3rd International Chambers of Commerce (ICC) Africa Conference on International Arbitration which is
scheduled to hold on Monday June 18th and Tuesday 19th, 2018 at the Civic Centre, Ozumba Mbadiwe Street, Victoria Island, Lagos. The conference is an annual event at which the African arbiContinues page 28