Retirement Savings Account (RSA) owners in Nigeria have been provided a glimmer of hope to own a home using the fund in their RSA balance to pay for residential mortgage.
The National Pension Commission (PenCom) had in 2022 introduced the policy which seeks to bridge the country’s huge housing deficit, Daily Trust on sunday understands.
A mortgage is a type of loan used to purchase or maintain a home, land, or any form of real estate.
PenCom said that many employees want to own residential homes before retirement, but however noted that a significant constraint for most employees is their inability to provide equity contribution to access a mortgage loan to own a house.
To address the challenges, the commission said the Pension Reform Act 2014 (PRA 2014) made provision for RSA holders to use part of their retirement savings as equity contributions for residential mortgages.
Subsequently, Daily Trust on Sunday presents the processes involved as outlined by the pension regulator.
Getting an offer letter
The first step to be taken is for an interested applicant to obtain an offer letter for the property from the owner or approved agent and approach a mortgage lender to fill out an application form.
The commission said the mortgage lender is mandated to review the application form and verify the genuineness of the property offer.
“The burden of due diligence is on the Mortgage Lender (The Mortgage Lender is a Commercial Bank or Primary Mortgage Bank licensed by the Central Bank of Nigeria to provide residential mortgages) to ensure that the property is genuine and has a valid valuation report,” PenCom said.
Request for RSA Statement
The next step is that after the property offer letter is confirmed, applicants are required to approach their pension fund administrator (PFA) and request their RSA statement in order to access the 25 percent of their RSA balance for payment of equity contribution.
PenCom said couples are allowed to apply if they both meet the eligibility criteria jointly.
Daily Trust on Sunday understands that in such a case, each party shall apply to their respective PFAs with copies of the verified property offer letter.
Subsequently, the PFA is required to issue a duly endorsed RSA statement to the applicant, which the applicant forwards to the mortgage lender.
Verification by lender
After receiving the RSA statement, the mortgage lender according to the Commission has to verify if 25 percent of the applicant’s RSA balance will be sufficient as an equity contribution.
In cases where 25 percent of the RSA balance is acceptable as equity contribution, the commission said the mortgage lender would issue a mortgage offer letter to the applicant.
If, on the other hand, 25 percent of the RSA balance is insufficient, the mortgage lender is required to request the payment of supplementary equity contribution from the applicant.
Upon confirmation of the additional equity contribution payment and meeting other requirements, the mortgage lender shall offer a mortgage loan to the applicant, PenCom said.
Presentation of mortgage letter
According to the guidelines, Daily Trust on Sunday checks show that within two working days of issuing the mortgage offer letter to the applicant, the mortgage lender must forward to the applicant’s PFA copies of the mortgage offer letter, the mortgage application form, and the verified property offer letter.
Additional information required include the loan amount, equity contribution required, bank account details of the mortgage lender and indemnity by the mortgage lender to the PFA on the use of the equity contribution.
Also, the mortgage lender is required to provide evidence of payment of difference where 25 percent of RSA cannot cover the needed equity.
“On receiving a mortgage offer letter, the applicant must approach his PFAs to request payment of his equity contribution
“The applicant shall obtain and fill out an application form for 25 percent of his RSA balance and provide an indemnity to the PFA.
“The PFA also computes and validates that the requested amount is not more than 25 percent of the RSA balance. In a joint application, each party shall apply to their respective PFA with a copy of the mortgage offer letter.
“The PFA shall forward all applications that pass its review to the commission within two working days of successful review and validation.
“If the PFA identifies any exceptions or discrepancies during the documentation review, the PFA shall communicate the exceptions to the mortgage lender within two working days,” PenCom further explained.
Review of application by regulator
After meeting such requirements, applications are transferred to the regulator (PenCom) to review all applications submitted by PFAs and approve or reject the applications.
Where the commission declines to approve an application, it is expected to communicate the reason(s) for its decision to the PFA.
Disbursement of approved amount to mortgage lender
After receiving PenCom’s approval, the PFA is required to instruct its pension fund custodian (PFC) to remit the approved amount to the mortgage lender within two working days.
PenCom said the PFC must pay the approved amount for equity contribution to the mortgage lender within two working days of receiving the PFA’s instruction.
“Primarily, PFAs are obligated to ensure that all applications for equity contribution by RSA holders meet the requirement of the guidelines,” PenCom said.
“PFAs are also mandated to maintain a record of applications received from RSA holders for payment of equity contributions for residential mortgages.
“Additionally, for transparency and ease of supervision, PFAs and PFCs are required to make periodic reports and returns to the commission on payments made in respect of equity contributions for residential mortgages.”
This Explainer is produced in partnership with the Centre for Democracy and Development (CDD)