NMRC: How mortgage refinancing works

The Nigeria Mortgage Refinance Company (NMRC) was established to bridge
the funding cost of residential mortgages and promote the availability as well
as the affordability of good housing to Nigerians. It will achieve this by
providing increased liquidity in the mortgage market through mortgage and
commercial banks.
The company is driven by substantial private sector participation consisting of
commercial banks, primary mortgage banks, insurance companies, private
equity investors and international financial institutions through the Ministry of
Finance. This is with the public purpose of developing primary and secondary
mortgage markets, raising long-term funds from both domestic capital market
and foreign markets to provide accessible and affordable housing to Nigerians.
NMRC recently announced the refinancing of 577 mortgages with the sale of
N10 billion bonds. Managing Director/CEO, NMRC, Prof. Charles Inyangete,
said the 15-year bonds will be used to refinance existing mortgages that meet
specified underwriting requirements and will be listed on the Financial Market
Dealers Association trading platform. He added that the mortgages being
refinanced were originated by nine banks which met the NMRC requirements
for uniform underwriting standards. But how exactly does the refinancing cycle
work?
Refinancing cycle
NMRC serves as a financial intermediary between the capital market and
financial institutions that provide mortgage loans to average working Nigerians.
It will access the capital market by issuing long-term bonds, and utilise the
proceeds of the bonds issued to provide liquidity to mortgage lending
institutions by providing refinancing facilities secured by the mortgage pool
created according to an agreed underwriting standard.
Initial step is for a borrower to take out a mortgage loan from a participating
mortgage lender based on the uniform underwriting criteria set by NMRC. In
return the borrower will provide regular repayments of the loan principal plus
interest. The borrower will also provide collateral in the form of a mortgage
over the property to be purchased.
Second step is for the participating mortgage lenders to refinance the loans
with NMRC. The participating mortgage lender in turn, provides security over
its mortgage portfolio in favour of NMRC. It acts as a simple intermediary
between mortgage lenders and the capital markets. By using its size and
credit worthiness, NMRC is able to raise funds at a cheaper rate.
The third step is for NMRC to raise its own funding by accessing the capital
markets and issuing bonds. NMRC refinances the mortgage loans of banks
with recourse to the financial institutions. It will issue corporate bonds which
do not involve any pass through of the credit risk attached to the mortgages.
NMRC acts as a simple intermediary between mortgage lenders and the
capital markets. By using its size and credit worthiness, NMRC is be able to
raise funds at a cheaper rate. This is attributable to the strong shareholders,
strong capital base, excellent quality of assets in its books and the fact that
NMRC is regulated by CBN and SEC.