Yinka Kolawole
The National Assembly has been called upon to enact laws on securitisation and foreclosure in order to attract such investments as pension funds into housing development in the country.

Director-General, National Pension Commission (PenCom), Mr. Muhammad Ahmad, who made the plea at a recent event in Lagos, also called for the development of the secondary mortgage market as an alternative to the current mortgage financing system. He said that pension funds cab be attracted to mortgage securities, and form part of investment portfolios of mortgage- backed securities or Real Estate Investment Trusts (REITs).

Securitisation is a financial process that distributes risk by pooling assets and then issuing new securities backed by the assets and their cashflows which are then sold to investors who share the risk and reward from those assets.

It is basically designed to reduce the risk of bankruptcy  and thereby obtain lower interest rates from potential lenders, and the concept is most popular used in housing finance. Foreclosure is the legal process  by which an owner’s right to a property is terminated, usually due to default. It typically involves a forced sale of the property, with the proceeds  being applied to the mortgage debt.

Ahmad who was represented by a director in PenCom, Mr. Lana Duyile, stated:  “This would act as an impetus for pension funds to invest in the housing sector as pension funds can strategically achieve an optimal trade off of risk and return by allocation of investment portfolio to appropriately diversified combinations of assets including mortgage backed securities.”

The PenCom boss noted that a pool of funds have been generated through the contributory pension scheme, which is open to investment opportunities on a long term basis. “Pension funds are veritable sources of financing long term investments like housing and mortgages that could promote the social well-being of citizens.” he said.

He asserted that the mortgage securities were veritable vehicles for attracting a broad variety of institutional investors to invest in mortgage markets, which were once dominated by thrift institutions and the government, adding that the development of the secondary market as an alternative to the current financing system in the country’s mortgage market was necessary to boost investment opportunity for pension funds in the housing sector.

“Pension funds can strategically achieve an optimal trade off of risk and return by allocation of investment portfolio to appropriately diversified combinations of assets including mortgage backed securities. Pension funds would thus ensure that regulations are put in place to define the eligible instruments and the limits that apply to them as part of requirements  for investing pension funds,” he said.

He remarked that a sound corporate governance in the nation’s mortgage sector is also required to attract pension funds investment, which he added, involves transparent disclosure, high management structure and better accounting, auditing and brokerage procedure.