How to tackle Nigeria’s housing crisis

To empower the low-income earners to access residential mortgage, the government must initiate an aggressive financial inclusiveness policy that would create a space for the poor in the banking/lending system.  The need to end the glaring mortgage discrimination is now in order to ameliorate the housing crisis.  For example, in 1922 the US Congress promulgated […]

To empower the low-income earners to access residential mortgage, the government must initiate an aggressive financial inclusiveness policy that would create a space for the poor in the banking/lending system.  The need to end the glaring mortgage discrimination is now in order to ameliorate the housing crisis.  For example, in 1922 the US Congress promulgated the “affordable housing goals” to ease the process of borrowing for the low income and minorities to buy houses.  President Jimmy Carter’s 1997 Community Reinvestment Act also compelled banks to make loans to low income borrowers that might not otherwise make based on purely economic criteria.  
Our primary mortgage banks have technically (with long list of conditions) excluded low income from mortgage loans.  It is a different scenario elsewhere. For instance, Cambodia has recently set up mortgage institution for the poor called the first finance mortgage, which, unlike conventional banks, developed a spreadsheet for low-income borrowers that does not insist on pay slip, title deed, assets, legal fees, obscure documents and predatory conditions.  Payne, the Chief Executive of First Finance, insisted that low-income borrowers hardly miss on their mortgages, as family members struggle to meet their obligations.
To reach the financially vulnerable, the subprime mortgage lending in the US offered window for the low income to buy their homes. Harold defined subprime loans as “loans made to borrowers with impaired or limited credit histories or those who have high ratios of debt to income.”  Subprime lending is lending to people who have a poor credit history. Despite the ripples subprime caused the world economy many argued that subprime mortgage lending opened up opportunity to people with poor credit to stagger into the market and get home loans.  According to Lisa Smith, subprime loan as a financial innovation added nine million households’ homeowners in less than a decade in the US, more than half of these owners are minorities, meaning economically less endowed Blacks and Latinos.  The beauty of creating space for the low income in the financial system to access loans to buy or build houses takes off stress on public resources.
The Nigerian government cannot forego other sectors and provide homes for its entire citizens and yet a deficit of 17 million homes is not an acceptable scorecard in the 21st century.  The so-called mass housing may only carter for a fraction. So, what is to be done?
The government should compel banks and primary mortgage banks to create a special mortgage loan product for the low income to buy their houses. This product should have liberalized and flexible underwriting standards with a low interest margin for lenders.
The government should guarantee residential mortgages created to this category of borrowers, probably by the Mortgage Refinance Company to be set up soon.
When the Mortgage Refinance Company comes on board its primary focus should be low-income borrowers interested in residential mortgages.
It is advisable that residential loans to this category of borrowers be on fixed interest rate.  We have seen how greedy lenders wreak havoc on subprime borrowers with adjustable rates in the US.
Government should strengthen mortgage laws to make it attractive to investors and easily accessible for the low income earners.  Foreclosure law should be passed to give confidence to lenders and make borrowers abide by their commitments.  
Expensive loans with predatory and dubious interest rates, legal fees, penalties etc should be expunged from the mortgage market for the low income bracket.
Less emphasis should be placed on documentation.  Plots of land verified even by ward heads should be “acceptable title,” so also the right of residency.  The security of the mortgage should be the property for which the mortgage was secured.  Banks should bend back a little to embrace the old tradition of trust in their dealing with customers.
Banks should accept guarantees from economically viable organizations that can stand for their members in case of default in payment.  Some religious, cultural and cooperatives societies are rich and they have both the cash and reputation to be trusted by banks.
Finally, creating access for the low income in the mortgage market will only make sense if the prices of building materials remain low. Government must address the issue.
The suggestions above may sound rudimentary in today’s high-tech banking, but the “egg-heads” in the industry can workout workable underwriting guidelines for the low-income to enjoy residential mortgage so as to quickly address the housing needs of Nigerians.    

Sabo is with the Federal Mortgage Bank of Nigeria ([email protected])