Central Bank of Nigeria (CBN) has paved the way for full take off of mortgage refinancing in the country with the release of regulatory and supervisory guidelines for the operations of a Mortgage Refinance company.
The apex bank noted that the framework is designed to ensure that the MRC operates in a safe and sound manner, on internationally accepted principles, standards and best practice in mortgage liquidity facilities.
It prescribes the basic regulatory requirements for the MRC’s principal line of business of re-financing 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, maximum leverage limit, and the minimum risk-weighted capital requirement.
The apex bank pegged the minimum capital base of an MRC at N5 billion, noting that the MRC shall commence operations with, and maintain at all times, a minimum paid-up capital of N5 billion. It also stated that a MRC should maintain, at all times, a minimum ratio of core capital to total assets (leverage ratio) of not less than five per cent.
The framework also stipulated that the core or tier 1 capital of the company should consist of paid-up capital and reserves plus retained earnings, statutory reserves, other reserves and published current earnings, less goodwill and other intangible assets and identified losses, or as otherwise defined by the CBN for licenced financial institutions.
In addition, CBN stated that the MRC shall maintain at all times a minimum ratio of qualifying capital to the value of its risk-weighted assets of not less than 10 per cent. Asset risk weights to be used for this computation shall be those prescribed by the Bank for licensed banks.
The guidelines listed permissible and non-permissible activities that an MRC can be involved in. For instance, the framework bars MRC from granting consumer or commercial loans; originating primary mortgage loans; and accepting demand, savings and time deposits, or any type of deposits.
It also prohibits MRC from undertaking estate agency or facility management; providing project management services for real estate development; management of pension funds/schemes; and all other businesses not expressly permitted by CBN.
According to the apex bank, the establishment of an MRC is primarily aimed at increasing the liquidity within the mortgage sub-sector and ensuring the availability of mortgage credit, reducing mortgage and related costs, and making residential housing more affordable.
The objectives of the MRC are to support mortgage originators such as primary mortgage banks, commercial banks to increase mortgage lending by refinancing their mortgage loan portfolios, and to act as an intermediary between originators of mortgage loans and capital market investors typically looking for long-dated high quality securities, it stated.
Permissible activities listed for MRC include: refinancing of fully secured mortgage loans and investment in debt obligations issued or guaranteed by the Federal Government or any of its agencies, which should not be less than 50 per cent of the MRCfs total investments; Issuing guarantee for mortgage loans as part of its off-balance sheet
