Residential mortgage financing and the home mortgage finance law
Introduction. Homeowners have been financing the construction of houses either by their own funds or through short term loans from friends, relatives and from the money market. This has made the construction of most housing units a long challenging venture. It could take over 10 years to complete a house, no wonder the entire country is littered with structures called dwelling places which do not qualify to be described as houses or homes. The need to develop a modern, deliverable sustainable and affordable housing finance scheme suitable and adaptable to the need of the people of this country cannot be overemphasized.
Establishing a mortgage finance scheme. The National Social Security and Insurance Trust (NASSIT), in pursuance of this need, formed a private limited liability company, the HFC Mortgage and Saving (SL) Ltd. to provide residential mortgage loans and mortgage linked consumer loans to prospective and quality applicants. This NASSIT sponsored pioneering mortgage finance institution aims at making it possible for individuals and group with ascertainable incomes to borrow to finance acquisition of houses and spread the repayment thereof over a period of time through longer term mortgage loans. The home mortgage finance act is part of the broader objectives to establish a sustainable and affordable housing finance system by introducing the enabling legal environment for mortgage financing.
Legal and regulatory environment. The condition for a flourishing mortgage industry requires accessible long term funding and an enabling legal and regulatory environment. The bold economic steps being taken by the ministry of finance including setting up of a stock exchange and amending the companies’ law to reflect modern financial business practices are positive steps towards creating the requisite environment for accessing long term funding. The role of NASSIT, other finance houses and high net worth individuals home and abroad in providing the appropriate funding mix of medium and long term funds need not be over emphasized. This demands a much more transparent, friendly and efficient legal and regulatory environment that will generate confidence and encourage investors and prospective home owners to make long term commitment towards funding and take up mortgage.
Statutes governing mortgages in Sierra Leone however are English laws of general application dating back to 1881.These laws are inadequate to protect the interest of both lenders and the borrowers, hence the introduction of the home mortgage finance law. The finance system prior to the application for a mortgage finance license by the HFCM&S company had no regulations for mortgage financing .Indeed the then governor of the bank took up the challenge in the establishing the regulatory framework for the mortgage financing. The legal and land administration systems are yet to transform traditional land ownership system by developing legally protected and commercially tradable interest in land. Extension of freehold interest in land as pertains in the Western area to the provinces, may be one of the solutions, caution must however be exercised by land administrators and law officers who should be mindful of the importance of land ownership to the socio economic and political stability in our societies. For example, in Ghana, one cannot create or acquire a freehold interest in stool lands that is land held by chiefs in trust of the subjects or government lands. One can only acquire freehold interest in family lands and even that, it is seldom to get the family grant a freehold, yet, land is tradable, mortgage business continues to flourish and land acquisitions by people from other ethnic groups and foreign nationals continues to grow. The traditional land ownership, ’USUFRUCT†which is the right to used land which operates in various forms in the provinces does not grant secured interest in land as the use of land is at the pleasure of the traditional authorities who can technically retake possession any time with or without compensation.
However, leases duly executed and registered are recognized interest in land and such leases if properly drafted provide security of tenure and should contain renewal clauses and terms of renewal. In development of estates, particularly block of flats and controlled communities, interest of home owners and mortgage companies, and value of properties are well preserved when leases rather than conveyances are granted. Management of such estates or block of flats is also made easier and effective. Land administrators should therefore be flexible in addressing the issues of the dual land tenure system and to consider other suitable interest in land rather than replicating what pertains in the Western area in the country or destabilize social and traditional harmony.
Another area where the law officers will have to tighten up is the form of conveyances. Conveyances are currently signed by the vendors and witnesses attest to the fact that the vendors executed the conveyances in their presence. Purchasers do not in anyway or anywhere in a conveyance acknowledge receipt. In the good old days where we were each others neighbours, this form of conveyance was adequate. We do not believe it is still adequate. There is the need for a system which will help detect people posing as owners or thieves stealing conveyances who may fraudulently use these land documents to raise loan through mortgages or execute fraudulent conveyances to transfer ownership. This weakness in the form of a conveyance poses real challenge to mortgage financing and the law officers and the registrar general should consider making it a condition for a valid conveyance, lease or assignment that the purchaser, lessee or the assignee executes the relevant land document as well and in addition endorse the back of the site plan. This will provide the mortgage company or would be purchaser a signature from the source document to match the vendor or applicant signature.
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