CBN, DMBs Move to Fund Mortgage Industry

Central Bank of Nigeria (CBN) has sent a draft of the regulatory and supervisory framework for the operations of a Mortgage Refinance Company (MRC) to all banks that will guide the provision of funds for the mortgage industry.

The CBN said the MRC would be a specialised second- tier institution which would provide short term liquidity, long term funding and or guarantees to mortgage originators and housing finance lenders.

Mr. Olufemi Fabamwo, director, Other Financial Institutions Supervision Department (OFID), in  a circular  to Deposit Money Banks (DMBs)  and Primary Mortgage Banks, the apex bank requested for comments, observations and suggestions on the establishment of the MRC.

The CBN said the establishment of the MRC was primarily aimed at increasing the liquidity within the mortgage sub-sector and availability of mortgage credit, reduce mortgage and related costs and make residential housing more affordable.

The circular said the frame work prescribed the basic regulatory requirements for the MRC’s principal line of business of refinancing credits to borrowers on the security of residential mortgage assets and other qualified collaterals.

It also sets the capital adequacy requirements for the MRC, including its minimum paid-up capital, minimum leverage limit and the minimum risk- weighted capital requirement.

The circular reads in part: “The framework specifies the types of collateral that a borrower can pledge for MRC’s advances and the discount that the MRC shall apply in determining how much it can lend against any qualified collateral.

“It also prescribes procedures for the management of MRC’s interest rate risk, its permissible investments and liquidity requirements.

“The procedure and criteria to be used in granting a licence to the MRC shall be the same as specified for banks under the Banks and Other Financial Institutions Act, CAP B3, laws of Nigeria, 2004 and any other regulations issued by the bank.”

The circular also said any promoter seeking a licence for operation of the MRC shall apply in writing to the CBN governor and that the application shall be accompanied with nonrefundable application fee of N100,000 and a detailed feasibility report containing information that shall include the need for the service of MRC, the branch expansion programme, the proposed training programme for staff and management, details of risk controls and mitigation strategies, among others.