Mortgages and it's Inception and Development in Nigeria

       Mortgages and it's inception and development in Nigeria.

Esther Ikechukwu Ojeh, University of Jos

ABSTRACT:

   Shelter is ranked as one of man's basic needs after food and clothing. Everyone knows that building or buying a home is a capital intensive project, which should normally end up with your property becoming an asset in the long run.

Many couples and matured singles desire to have a place they can call home, devoid of landlord problem ( whahala ). In the process of trying to seek out the ideal home that is affordable, the concept of getting and owning a home symbolizes a sense of belonging and arrival. It is aspiration fulfilled. 

INTRODUCTION:

   Mortgages dates back to the late 14th century with the roots " mort " meaning death in french and " gage " meaning pledge. While that literally makes a mortgage a death pledge, it's not as eerie as it sounds. It is believed that the concept of a mortgage began in early civilization. An exchange of property with a pledge to repay overtime.

 The pledge would be considered " dead ", or " null " , once the loan was repaid or if the borrower could not fulfill the terms of the deal. The basic mechanisms of a mortgage has existed for centuries, mortgages as know then didn't exist in the United States untill the 1930s.

 Prior to that, the industry had little regulations and there were many types of mortgage lenders who operated under different guidelines, before the US government intervened during the crash of 1929, homeowners would renegotiate their mortgages yearly, and as the economic crisis wore on , 40 - 50% of homes were in default.

In Nigeria the federal mortgage bank of Nigeria was founded by the federal government of Nigeria in 1977 to replace the Nigerian building society which was founded in 1956. Between 1978 and 1985 , it was the only mortgage institution in Nigeria. According to the constitution of Nigeria, the federal mortgage bank was established to meet the housing needs of all citizens of the country. It is regarded as the apex mortgage finance institution in the country and regulates the activities of primary mortgage loan originators. 

WHAT IS A MORTGAGE?

The black's law dictionary defines mortgage as a form of conveyance of title to property that is given as security for the payment of a debt or the performance of duty and that will become void upon payment or performance according to the stipulated terms. 

It is an agreement between you and a lender that gives the lender the right to take your property if you fail to repay the money you've borrowed plus interest. In other words a mortgage is a loan in which a property or real estate is used as collateral. The borrower enters into an agreement with the lender (usually a bank) wherein the borrower receives cash upfront then makes payments over a set time span untill he pays back the lender in full.

The collateral is held by the lender until full repayment of the loan is done. The loan is repaid through equated monthly instalments or EMIs ( EMI is a fixed sum that you need to pay each month to the lender after availing the loan ). How ever the modalities of repayment can differ.

A direct government intervention to expand the mortgage industry in Nigeria was effective, the bank was established by the military government of olusegun obasanjo to be a wholesale and retail credit institution that would provide long term financing to home buyers, building materials firms and mortgage financial institutions.

The initial plan was to make the company pool long term deposits from government sources, mortgage companies, pension and trust funds and private individuals to fund it's credit activities at competitive interest rates. 

The law founding the bank came in effect in January 1977 and also gave the bank the ability to guarantee construction loans financed from private investments. The bank inherited the assets of a previous Nigerian building society following the dissolution of the latter. 

However, the objectives of the federal government's housing policy were slow to become a realization, in 1989 the administration of Ibrahim babangida liberalized the housing finance sector and opened up opportunities for retail oriented primary mortgage institutions. Federal mortgage bank of Nigeria ( FMBN ) was propositioned to become a regulator of the primary mortgage originators as the apex mortgage lending institution in the country, and it's primary lending activities were taken over by the federal mortgage finance company of Nigeria.

In furtherance of expanding mortgage financing to more Nigerians, the government established the national housing fund that included a mandatory contribution scheme to mobilize funds to develop the mortgage sector. The activities of the bank have been geared towards the development and regulation of primary mortgage originators and managing the national housing fund.

The FMBN provides long term credit services to mortgage banks in Nigeria and other mortgage institutions at rates that will allow the mortgage banks and institution grant loans to individuals who want to acquire their own houses.

FUNCTIONS OF FMBN:

i. It encourages and promotes the establishment and development of mortgage institutions at federal, state, local and even rural levels. 

ii. It encourages the growth of the required lasting secondary mortgage institutions to meet the housing needs of Nigerians.

iii. The federal mortgage bank of Nigeria gives licensing authority for secondary mortgage institutions In Nigeria.

iv. It monitors and regulates the activities of mortgage institutions in Nigeria.

v. It collects and manages the national housing funds in a manner that conforms the provision of the national housing fund Act.

vi. The federal mortgage bank also mobilizes both domestic and foreign funds until the housing sector, and it is the link between the mortgage market and the capital market. 

vii. The bank also introduces different innovative mortgage related programs and products to achieve it's mandates.

HOW MORTGAGES WORK:

Individuals and businesses use mortgages to buy real estate without paying the entire purchase price up front. The borrower repays the loan plus interest over a specified number of years until they own the property free and clear. Typical mortgage terms are for 15 or 30 years and mortgages are also known as " Liens ". There are several types of mortgage loans availing Nigeria, including;

i. Fixed rate mortgages: They have a set interest rate for the entire term of the loan.

ii. Adjustable - rate mortgages: They have an interest rate that can change overtime.

iii. Balloon mortgages: it is a lower monthly payment for a set period of time, but then require a large lump sum payment at the end of the loan term.

According to H. S. N okoli " Land is today, the most acceptable form of security especially for a long term credit as it appreciates in value, unlike other forms of security over a period of years. A mortgage is not a sale. In OWONIBOYS TECHNICAL SERVICES LTD v. UNION BANK OF NIG LTD ( 2003 ) SCNQR 58 , the Court pointed out that "once a mortgage always a mortgage, there must be no clog on the equity of redemption".

The law does not divest the mortgagor of his title in the property, he remains the owner whilst the mortgagee is the custodian of the property as a form of security to ensure repayment of the mortgagor's indebtedness. It is pertinent to note that while a mortgage is not a sale, the mortgagee reserves the right in some instances to sell the mortgaged property where the mortgagor defaults in his obligations under the mortgage.

TYPES OF MORTGAGE:

There are two broad types of mortgages namely legal and equitable mortgage.

i. Legal mortgage: This mortgage created pursuant to statutory provisions. It is usually by deed and there are three operative laws regulating the creation of legal mortgages in Nigeria namely,

a. The Conveyancing Act , 1881 ( for states created from the old northern and eastern regions and some parts of Lagos ).

b. Property & Conveyancing law, 1959 ( for states created from the old Western and Midwestern regions ).

c. The Registration of titles law, Cap R4 Laws of Lagos state 2003, ( for some parts of lagosy, especially Victoria Island, ikoyi and surulere, Lagos Island, Yaba, Bariga, Somolu, Apapa, oyigbo, Badagry ).The form and contents of the instrument creating such a mortgage are prescribed by law and non compliance with the law may be fatal to the entire transaction. The mode of creating a legal mortgage in Nigeria is determined by the law applicable in the state where the property is situated.

Finally, the perfection of a legal mortgage in Nigeria is primarily the responsibility of the State land registries. However, where the mortgagor or the property to be mortgaged is owned by a corporate entitle, such a mortgage must also be registered with the Corporate Affairs Commission. 

ii. Equitable mortgage: it's is a type of mortgage created under the rules of equity. It confers equitable interest in the mortgagee. It is more suitable for short terms loans. Equitable mortgage is not as secure as a legal mortgage, but in practice, the mortgagee protects his or herself by requesting that the mortgagor at the time of creating the equitable mortgage sign a legal mortgage and consent form, which is kept aside untill the mortgagor is in default of repayment and the mortgagee will perfect the legal mortgage to enable it to exercise the statutory power of sale. If the mortgagor is not in default, and he successfully pays back the loan, the legal mortgage becomes useless modes of creating equitable mortgages in Nigeria which are uniform, except for the RTL areas where they make use of forms. 

Mortgage applications go through a rigorous underwriting process before they reach the closing phase. Mortgage rates sank to historic lows in 2020 and 2021, recording their cheapest levels in almost 50 years. From roughly the start of the pandemic (April 2020) to Jan. 2022, the 30-year rate average wavered below 3.50%—including an ultimate low of 2.65%.

But 2022 and 2023 saw mortgage rates skyrocket, setting records in the opposite direction. The 30-year average breached the 7% threshold for the first time in Oct. 2022, and this past October, it was closer to 8%, notching a 23-year peak reading of 7.79%.

Since then the 30-year mortgage rate has come down by over a perctage point as of Feb. 2024.

CONCLUSION:

Mortgages are an essential part of the home buying process for most borrowers who aren’t sitting on hundreds of thousands of naira to buy a property. Mortgage as security for loan transactions is the most reliable form of collateral, it is a form of security that assures the repayment of loan facilities and is highly recommended. Considering the fact that mortgage culture is still new to the majority of Nigerians, the task of enlighment is needed. Mortgages are instrumental in providing secured homes for millions of people in the country. 

REFERENCES:

i. The role of the mortgage industry in Nigeria.

ii. Mortgage institutions and financing in Nigeria.

iii. Federal mortgage bank of Nigeria - Wikipedia

iv. Mortgage services in Nigeria.

v. Critical analyy: mortgage as a form of securing loan transaction in Nigeria. - www. AAA Chambers. com

vi. What is a mortgage? Types, How they work - www. Invstopedia. com