While setting up a mortgage institution in Nigeria will take a human factor, the Nigeria government is not keen on facilities needed to get such going. Even Finance Minister Madam Okonjo-Iweala sees the World Bank as the rescuer and solver of every problem in Nigeria. For the ignorant Nigerian, that may be true, but for those of us with knowledge of financial instruments, this is ‘voo-doo.’

There are many factors to consider and entrench before robust mortgage securities can be established. To announce that we are obtaining $300m in concessionary loan from the World Bank as an indicator tells a story of selling junk to mostly ignorant society. What is $300m in the face of Nigeria’s housing needs?  Who in the US even invites the World Bank when it comes to mortgage issues and its structure? In US, nobody invites the World Bank to testify in the US congress on what to do about mortgages.

Establishing mortgage securities in a country with weak legal and financial structures is hard but can be done if concerned parties commit and yield to proven experience to achieve the objective. Nigeria’s legal and financial institutions have a global reputation of being immature and 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 the US federal might and that is golden – carte blanc, which attracts resources from all over the world. Nigeria’s credit rating and ranking is nowhere 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. That is why the US economic wealth and assets are largely secured on real estate. Even if Nigeria’s leadership was to copy and paste such a system, it lacks local well-trained and equipped human capital to handle the volume of activities that ensue from a robust mortgage system.

Making Nigeria’s mortgage backed securities tradable for a 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 re-train 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’s 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 does not have the depth or body of knowledge to handle foreclosures and bankruptcies. One may challenge this view but the outside world would like to know how long the process would take in the case of loan default and foreclosure by a lender. How can the opinion of an estate surveyor with shallow training and poor documentation to back the valuation be used to underwrite the asset? 

The implied imposition, challenges and nuisance occasioned by the Nigeria Land Use Act, is yet another issue to address as it affects loan collateral. Since less than 20% of landowners 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 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. Whoever owns land or real estate must not be hard to verify and proven. With Nigerians’ undue sense of secrecy and culture that encourages hidden agenda, it is yet to be seen how this issue would be overcome.

Are Nigerians prime and ready to make on-time monthly mortgage payments? If yes, will the federal/state governments - the biggest employers -  pay staff on time so that 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 can sort things out? These are some of the challenges and they must be addressed sufficiently and legally with sound legislation in order for foreign resources to the 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. 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. 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 should such an attitude and culture be addressed? The reason why the 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 are poorly underwritten. Seventy-five percent 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 president to intercede on their behalf. 

Who is the lender in the world that would risk 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.

By Ejike E. Okpa II
Dallas, Texas.

Ejike E. Okpa Holds a certificate in Real Estate Securitization; a program of Harvard University and European Business School. He 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. Mr. Okpa achieved the 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.