E E OKPA
Setting up mortgage institution as we know it in Nigeria will take an act of God as well as human factor. For act of God, it will not happen and for human, Nigeria government is not deep in the sort of facilities needed to get such going. Even Finance Minister Madam Okonjo-Iweala with all her good intentions, this is above her head. She is a World Bank lover, and it is no surprise she thinks and sees World Bank as the rescuer and solver of every problem in Nigeria. Well for the ignorant Nigerian, that may be true but for those of us on this side with reasonable knowledge of financial instruments, its creation and utility, we know that what Madam Okonjo-Iweala is promoting is ‘voo-doo’, all things considered and being equal.
There are many factors to consider and entrench before robust mortgage securities can be established. That being the case, it is a good announcement but one we shall wait for devils in the details document/policy. To make announcement of obtaining $300m in concessionary loan from World Bank as an indicator tells a story of selling junk to mostly ignorant society. What is $300m in face of the Nigeria housing needs, and who in US even invites World Bank when it comes to mortgage issues and its structure? In my 20 some years in US, no-body and I mean no-body invites World Bank to testify in US congress on what to do about mortgages.
Establishing mortgage securities in a country with weak legal and financial structure is hard but can be done if the parties commit and yield to proven experience to achieve the objective. Nigeria legal and financial institutions have global reputation of being immature/weak, and since financial instruments draw their value – creditworthiness and strength from sound legal structure, mortgage securities a product of legal creation or extension of credit by instrument gets hard to develop in such a country. Mortgage Securities would be easier to accomplish through formidable financial institutions than going through any government agency given the reputation of Nigeria government employees. However, they need to be involved somehow.
A US Fannie Mae type institution in Nigeria is a dream because it will never happen under the current loose financial institution governance in Nigeria. Fannie Mae enjoys full face backing of US federal might and that is golden – carte blanc, which attracts resources from all over the world. Nigeria credit rating and ranking is no where close to attracting such for non-oil sector investments. But again, never say never. The value of Fannie Mae, whose only business is real estate residential asset securities – single and multi-family homes is bigger than the value of the world’s 10 top corporations added together. Reason US economic wealth/asset is largely secured on real estate. Even if Nigeria leadership were to copy and paste such system, it lacks local well trained and equipped human capital to handle the volume of activities to ensue from robust mortgage system.
To make Nigeria mortgage backed securities tradable for robust system, will require revamping and changing how real estate securities are appraised and valued in Nigeria. The Nigerian Institution of Estate Surveyors and Valuers, in their current scope of practice, professional conduct, ethics and codes will have to retrain every estate surveyor currently in practice on how to value such securities. Majority of them will not qualify to value mortgage backed securities for placement on the international market for purchase. What makes mortgage attractive for foreign investment is the underlining value of the assets on which the mortgages are secured. Nigeria judiciary has to update its civil court proceedings and judges trained to handle foreclosures without political interference. The one-judge judgment style and accompanying brand of lawyers in Nigeria do not have the depth or body of knowledge to handle foreclosure and or bankruptcies. One may challenge this view but the outside world would like to know in the case of loan default and a lender is ready to foreclose, how long will the process take? The estate surveyor with shallow training and poor documentation to back the valuation, how can their opinion be used to underwrite the asset?
The implied imposition, challenges and nuisance occasioned by Nigeria Land Use Act, is yet another issue to address as it affects loan collateral. Since less than 20% of land owners in Nigeria can actually show proof of ownership, how soon will Nigeria seek to have all owners and future ones properly documented and titles made easily marketable and or transferable? One of the most important tangible features of real estate ownership is legal rights – titles unencumbered or clouded by issues. Without proper legal rights both for the designated urban areas – those that enjoy Certificate of Occupancy statutes and Right of Occupancy for rural communities, establishing mortgage securities is a wish. Who owns land or real estate must not be hard to verify and proven, and Nigerians with undue sense of secrecy and a culture that encourages hidden agenda, it is yet to be seen how this issue would be overcome.
The question, are Nigerians prime and prepped to make on-time monthly mortgage payments and if yes, will the federal/state governments the biggest employers, ready to pay staff on time so they too meet their monthly obligations? If a default occurs, will the court move ahead based on the deed of trust provisions or will a judge want a file brought to his/her house so that they sort things out? These are some of the challenges and they must be addressed in sufficient manner legally with sound legislation in order for foreign resources to see 16m housing needs as bankable opportunities and ready for prime time.
To deliver 16m housing needs assuming 500,000 units are built consistently each year, will take 32 years to accomplish, and there is no magic to getting this done except through robust mortgage securities avenue devoid of undue political interference and a system that runs regardless of the political party in power. And since Nigeria in its nearly 100 years of existence going by 1914 amalgamation, has no proof of having built 100,000 housing units annually, delivering 500,000 units annually would be like pulling a tooth with tooth-pick or digging a hole to ‘China’ with a spoon.
With Nigerians always wanting to cut-corners and use political access to avoid meeting their obligations, how is such attitude and culture to be addressed? Reason; largest bank in China did not invest in UBA was because majority of UBA debts are secured by/on signature and some of the assets are not creditworthy and or poorly underwritten. 75% of UBA outstanding debts and notes are those held by party bosses who often refuse to pay and will not hesitate to call on their governor, senator and or president to intercede on their behalf.
Who is the lender in the world that would risk its credit rating and buy mortgage notes and or securities secured on Nigeria real estate? I do not know of any but again, it can be done. It will require assembling Nigerians who have depth of how such institutions and structures operate and let them present a blue print.
Just my 2 kobo.
E E OKPA
Holds a certificate in Real Estate Securitization; a program of Harvard University and European Business School, a rare program that was offered once by the 2 institutions. This was an elective requirement for my graduate program at Harvard University. In partial fulfillment and requirement for UST graduation in 1983, my paper was on The role of Nigeria Federal Mortgage Bank in housing development, case study of Rivers State. Since migrating to US, Mr. OKPA was the first black ever to head a department of US Federal Deposit Insurance Corporation – FDIC as Receiver for liquidation of failed savings and loans and banks assets, heading the appraisal department that oversaw the valuation of assets in 8 US states under the central regional office; 1988-90. In June 1989, Mr. OKPA was recognized by US federal lawyers for assisting in successful prosecution of those that defrauded financial institutions as I provided polish to their criminal referrals. It may be worthy to note that Mr. OKPA is the only Nigerian ever who studied Estate Management in Nigeria and became a certified General Appraiser in Texas in 1992, when it was made mandatory to hold such license to appraise assets under federally insured institutions. No Nigerian has achieved such professional standing with estate management degree from Nigeria in US. Mr. Okpa achieved such enviable professional standing in less than 7 years of coming to US. He is also a Senior Property Tax Consultant in Texas and once served on the board of Dallas County Appraisal Review Board – commercial section.