Secondary Mortgage

Development of the Nigerian secondary mortgage markets

Secondary mortgage markets (SMMs) are becoming an ever more important target for the world economy. Whereas mortgage lending comes from the Primary Mortgage Markets (PMMs) and involves borrowing by using real estate as collateral, SMMs offer a vehicle on which lenders can prematurely resell the claims from the loan against principal.

Mortgages can either be traded separately on IMM or packed into a pool before being traded in order to enhance investors' involvement by providing opportunities for groups to invest. Proceeds from these disposals will be used to grant further credit and thus provide immediate cash in the PMM. Subsidiary privileges such as the service of the credit, which also include handling of payments, collection and enforcement, can be assigned in addition to the claims or withheld by the mortgage lender.

National Mortgage Corporation of Malaysia Cagamas Beread was the driving force behind the Malaysian home improvement project, with the main goal of raising the proportion of home owners in the state. Among other things, Cagamas used a Purchase with Recourse (PWR) scheme which ensures that all liabilities associated with the loans remain with the lender.

DWR enabled large sums to be invested on favourable and longer conditions right from the start of CMM, thus providing a source of cash in an immature niche store. The United States government has established the Federal Housing Administration (FHA) to make sure that mortgage lenders are reimbursed in the case of a borrower's default.

The FHA also set up standardised lender support tools for the underlying processes, enabling the release of standardised and generally available mortgage interest rates as well as enhanced competitive pressure. Basically, it provides and sustains cash in the CMMs and thus increases the proportion of mortgages in the CMM and thus increases accessibility to residential construction financing in general.

After all, an already wellestablished and fully operational CMM is attracting international investments on the country's equity markets and promoting general business development. Factors that are critical to a viable mortgage management system include the following core criteria: International mortgage lending and maintenance practices; a robust legislative environment that provides investors with privacy and enhances visibility; the development of mortgage service records; and a sound PMM.

More than 80% of Nigerians do not have direct or indirect contact with traditional shelters, mainly due to the barriers to obtaining financing for house building, while clients do not have direct contact with long-term financing for building and are forced to take out short-term credits at high interest levels. Founded in 2013, Nigeria Mortgage Refinance Company Plc (NMRC) was established to enhance Nigerians' ability to obtain accessible residential space by borrowing long-term debt from the financial community and using it to enhance the solvency of mortgage lending operations.

Mortgagors and personal credit institutes are provided with the resources in return for the acquisition of their mortgage pool. NMRC is a pioneer in the evolution of the Nigerian mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage mortgage subprime mortgage subprime mortgage mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage subprime mortgage mortgage subprime mortgage.

Providing a solid basis for lending will improve the attractiveness of mortgage lending and thus reduce the probability of overdue and non-performing credit being granted. An improved PMM also simplifies the securitisation and secondary loan trade processes while opening opportunities for global investment and long-term financing.

The aim is to guarantee that mortgage credits reach a homogenous state at the time of granting and thus offer the necessary security to acquire a participation in the swimming pool with as little as possible exposure to risks. When mortgage pooling contains a wide range of mortgage types, each with its own set of conditions and documents, the costs of due care are high and sales in the secondary markets are low.

The uniformity of the features of mortgage lending, such as ownership, duration, interest rates and the nature of the real estate to which it relates, reduce the total cost of the valuation and handling of mortgage lending transactions with a view to the creation of mortgage-backed assets for resale. Within the framework of its standardisation processes, the NMRC, with the support of the World Bank/IFC, has established a strong body of Uniform Underwriting Standards (UUS) which, if adhered to, classify mortgage credit as refinanceable for SCM.

USSR sets out the mortgage credit and creditworthiness requirements for the creditor, thus assuring that the main characteristics for the enforcement of statutory mortgage requirements are in place, encompassing high value securities, appropriate ownership rights and due registry and procedure. For Nigeria, the preparation of standard documents covers all parts of the mortgage securitisation processes and includes the standardisation of the following documents - mortgage origination and funding documents.

Furthermore, many SMMs that have been designed have a stock issue or stock assurance as part of the trade documents for the markets. As a result, the administration burden in the shape of securities research is reduced, the owner and state of the real estate used as collateral are displayed and, with the involvement of securities assurance, the investor is shielded from the risks of the secured lien holder having a wrong security interest or other charges higher than the collateral to be provided.

Mortgage service relates to the secondary operations associated with mortgage credit, such as the recovery of mortgage repayments and the periodical transfer of these repayments to the investors. The mortgage servants can be either originors or third party and act as the prime information sources for the mortgage to ensure that the information about each mortgage is correct.

You are required to provide early information to the investor on the mortgage loan/pool situation, balance sheet history and value development. One important part of the service associated with the UUS and standardized documents is the process and policies for collecting mortgage payment. ICT infrastructures to support the administration, handling and distribution of all mortgages to be dealt with are also an important part of an SCM, as they ensure close supervision and logging.

Sound legal frameworks improve mortgage lending by removing typical barriers to lending, such as high administration charges and a long time frame for registering. Furthermore, it shall monitor general behaviour in the mortgage pool environment, establish equitable and efficient resolution mechanisms by balancing the interests of all parties in the pool and promote greater openness by properly monitoring the disclosure levels necessary for the creation of mortgage pooling arrangements.

Key components of the legislative environment are the regulations of the Central Bank of Nigeria (CBN), the Investment & Securities Act and the Securities and Exchange Commission ("SEC Rules"), as well as a new Model Mortgage and Foreclosure Law being developed with the objective of PMM development. The CBN has created a regulation and supervision regime that complies with the Central Bank of Nigeria Act (CBN Act) Banks and Other Financial Institutions Act (BOFIA) and the Investment & Securities Act (ISA), all of which regulate the operations of the Mortgage Refinance Company (MRC) and influence mortgage lending and borrowing market.

ISA and SEC rules provide commitments for MRCs that foster accounting and disclosure and enable supervisors in the financial markets to supervise cash. For example, the registration of all transferable Securities with the SEC and the submission of financial statements to the SEC, which must also provide information about the degree of adherence to the SEC Code of Conduct on Corporations, are required.

These commitments provide individual/company with the investment convenience required, which enhances activities on the markets. NMRC is also pushing forward the drafting of a sample mortgage and enforcement act to be adopted by each state in the state. Its main goals are the rapid pursuit of the mortgage creation procedure, the prompt settlement of real estate conflicts and the creation of an effective enforcement procedure in the case of loan defaults.

Another more convenient complement to the legislative environment is the creation of a mortgage register in each country. Nigerian Capital Markets (NCM) has an important part to play in the design and implementation of an SCM, in which the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE), brokers, custodians, underwriters and registration agents are involved.

NCM has grown steadily since the 1960' and has reached several important landmarks, among which the Federal Government's nomination of the Nigerian Capital Market Review Board, whose tasks include, in particular, the review of the role of regulators, their supervisory role and suggestions for improvements, and the adoption of the Investment and Securities Act, which became the most important piece of law for the management and operations of NCM.

Whilst the quest for a resilient CMM in Nigeria has been tapered off by the NMRC's introduction of best practices internationally, it will be several years before the Nigeria CMM becomes self-sufficient - with mortgage lenders providing collateral for their own mortgages without the need for mortgage lenders.

However, the potential effect of the CMM is to improve financing opportunities for affordability as cheap longer-term credit becomes increasingly attractive in this country.