CBN Unveils Framework for Mortgage Refinance Company

Sanusi Lamido Sanusi

. Pegs capital base at N5bn

Obinna Chima

As part of efforts to ensure the success of the recently inaugurated Mortgage Refinance Company (MRC), the Central Bank of Nigeria (CBN) Thursday introduced a regulatory and supervisory framework for the operation of the company.

The 38-page document posted on the central banks website yesterday stated that the MRC shall commence operations with, and maintain at all times, a minimum paid-up capital of N5 billion.

It also stated that a MRC should maintain, at all times, a minimum ratio of core capital to total assets (leverage ratio) of not less than five per cent.

In addition, the framework stipulated that the core or tier 1, capital of the company should consist of paid-up capital and reserves plus retained earnings, statutory reserves, other reserves and published current earnings, less goodwill and other intangible assets and identified losses, or as otherwise defined by the central bank for licenced financial institutions.

The establishment of an MRC is primarily aimed at increasing the liquidity within the mortgage sub-sector and availability of mortgage credit in Nigeria, reduce mortgage and related costs, and make residential housing more affordable.

The benefits of such mortgage liquidity facilities are globally acknowledged. As a financial institution, the MRC would be under the regulatory and supervisory purview of the CBN.

The document added: The MRC shall maintain at all times a minimum ratio of qualifying capital to the value of its risk-weighted assets of not less than 10 per cent. Asset risk weights to be used for this computation shall be those prescribed by the Bank for licensed banks.

Nonetheless, the central bank stated that the MRC would not be allowed to granting consumer or commercial loans; originate primary mortgage loans; accept demand, savings and time deposits, or any type of deposits; finance real estate construction; undertake estate agency or facilities management; provide project management services for real estate development and manage pension funds or schemes.

On the licensing requirement, the CBN explained that the procedures and criteria to be used in granting a licence to the MRC would be the same as specified for banks under the Banks and Other Financial Institutions Act, CAP B3, Laws of the Federation of Nigeria, 2004 (herein after referred to as BOFIA) and any other regulations issued by the Bank.

The ultimate responsibility for every MRCs operations shall be vested in its Board of Directors. The number of directors on the board of the MRC shall be a minimum of seven and a maximum of 15. The non-executive members must be at least twice the number of the executive directors at any point in time.

The Bank shall approve the appointment of each director who shall meet the qualifications for licenced bank directors as specified in the BOFIA, or as may be specified by the Bank from time to time, it added.

Continuing, it stated that executive directors of the MRC are expected to hold office for a fixed term of not more than five years and such term may be renewed only once, while non-executive directors would serve for a fixed term of not more than four years and such term may be renewed only twice.

It stated: For the avoidance of doubt, the maximum tenure of an executive director shall not exceed a total of 10 years while a non-executive director shall not serve for periods exceeding 12 years in total.

Any executive director who has served two 5-year terms may equally serve as Managing Director, if so appointed, for the maximum of two 5-year terms (a combined maximum of 20years).

There are good reasons for mortgage refinance

There are several reasons to refinance a mortgage, and the first one is to get a lower mortgage rate.

The average interest rate on an outstanding mortgage at the beginning of 2012 was 5.098 percent, according to the Bureau of Economic Analysis. However, lenders today are offering rates well below that benchmark, making a refinance a no-brainer for many.

But low rates are not the only motive for refinancing a home loan.

The No. 1 reason to refi is to get a lower mortgage rate. Despite sinking rates, a lot of people havent refinanced.

Many homeowners would like to refinance but cant because they have little or no equity due to falling home values. Jim Sahnger, mortgage consultant for FBC Mortgage in Jupiter, Fla., said too many of his clients cant refi for this reason.

But there are people who can, and some people who get so into whatever theyre doing that they dont pay attention to the news and dont pay attention to where rates are, Sahnger said.

So Sahnger will call to tell them that rates are near record lows.

Convert an ARM

Stability-hungry borrowers are ditching adjustable-rate mortgages and refinancing into fixed-rate loans.

Everybodys frightened about inflation, so if they have an adjustable loan, thats the No. 1 reason theyre getting out of them, said Jeff Lazerson, president of Mortgage Grader, a lender based in Laguna Niguel, Calif. Its not because you can get them at a better rate, but because you can get them at a stable rate.

Other borrowers swing from one hybrid ARM to another, said Matt Hackett, underwriting manager for Equity Now, a direct mortgage lender based in New York City.

Weve done a few of those for people who were in a five-year ARM that they originated four years ago, that was getting ready to adjust, Hackett said.

Even though the rates were about to adjust downward, they got new 5/1 ARMs to extend low rates another five years.

Get a mortgage on a paid-off house

This isnt technically a refi, but its close. Mortgage-free homeowners sometimes get mortgages to put cash in their pockets.

Theres a lot of people who dont have a mortgage, Hackett said. Maybe they want to go to Florida, buy a second home with cash. So they cash out their first home and take the cash and go down there and dont need a financing contingency, and theyre in a better position to bargain.

They also could take out a mortgage on a paid-off property to start a business or for other reasons.

Cash out to consolidate debt

When house prices were rising by 10 percent or more a year, millions of borrowers got cash-out refinances. They refinanced for more than they owed, got cash, and spent or invested it.

The cash-out refi craze ended when the housing bust began. But there are still a few cash-out refis.

Were still in the business of cashing out people – paying off credit cards, for example, said Michael Moskowitz, president of Equity Now.

Michael Becker, mortgage banker at Happy Mortgage in Lutherville, Md., said, Its not like it was years ago, when people took cash out to buy things, like a pool, a car or an RV. It seems more to be paying down debt, lowering their debt service, and trying to save money.

Cash out to buy other property

Lately, Lazerson has noticed an interesting refinancing trend.

One thing thats a trend now is that people are taking money out to purchase other properties, he said.

Often, its to buy investment properties.

Refinancing to buy property can bring up unexpected tax and mortgage underwriting issues. A lot depends upon how the refinanced house and the new property will be used.

For example, which property will be the primary residence? Will the other property be rented? Those are issues for a financial adviser or tax professional to untangle.

Consolidate two mortgages

Some homeowners want to combine their first mortgage with the home equity line of credit.

Im seeing a lot of people, even if their rate on their home equity line of credit is 3 percent, refinancing to get rid of them, Becker said.

Why get rid of a loan with a low rate?

Because theyre worried if five years from now, what if the rate jumps to 12 (percent), 11 (percent), 13 percent? Becker said.

Address family matters

Divorces often lead to refis as a means of removing the absent former spouse from the note.

That has less to do with rates and is more about timing, Lazerson said.

Moskowitz said he recently did a $110,000 cash-out refi from a woman who used the money to bail out a son facing foreclosure on his own house.

Drowning in student debt? Maybe you can refinance

Millions of Americans could put more money in their pockets each month by refinancing their student loans. Its always been possible to refinance private student loans, but few financial institutions offered this service.

In January, RBS Citizens Financial Group, which operates Citizens and Charter One banks, introduced a new Education Refinance Loan, with fixed rates as low as 4.75% APR and variable rates starting at 2.8% APR. There are no application, origination or disbursement fees and you dont have to be a bank customer to apply for this refinance.

These are very aggressively priced and typically a much better rate than a loan you can take out when youre in school, said Brendan Coughlin, head of education and auto finance at RBS Citizens Financial. For a vast number of students who have private student loan debt, this will dramatically improve their payments and the interest they pay over the life of their loans.

Coughlin said the company sees this as a very big business opportunity and a way to build lifelong relationships with students and their families.

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Citizens and Charter One will only refinance private loans. SoFi, a student loan company based in San Francisco, will also refinance government loans. SoFi has refinanced $400 million in student loans since 2012.

And thats just the tip of the iceberg, said SoFis CEO, Mike Cagney. There are hundreds of billions of student loans out there that have a great potential to be refinanced and we hope to get the word out.

Cagney told me the average customer saves between $5,000 and $9,000 over the life of the loan.

Gil Eyal is glad he heard about SoFi. After getting his MBA from Northwestern University, Eyal moved to Hoboken, NJ, and worked on a social media start-up. He refinanced $100,000 in federal loans with SoFi — from 8.5% to 6% — and cut his monthly payment by $500.

We were barely breaking even, Eyal said. Now, we can save some money every month, which definitely gives us breathing room and the ability to have the paycheck go a little further.

Are you a candidate?

Refinancing isnt for everyone. Basically, you need to be in better financial shape than you were when you took out the loans.

You have to be employed and youre in the best position if your credit score is good, particularly if it has improved since those loans were taken out, said Greg McBride, chief financial analyst with Bankrate.com.

One of the most important things is to make sure that youre actually getting a lower interest rate.

Your interest rate should go down, not just your monthly payment, said Rohit Chopra, student loan ombudsman and assistant director at the Consumer Financial Protection Bureau. You might be able to get a lower payment simply by extending the term of your existing loan, but the interest rate could be higher which will cost you more in the long run. The way to save on interest is to make sure you get a lower APR.

Something else to consider: When you refinance a federal loan into a private student loan, you may lose some valuable benefits — such as public service loan forgiveness or the option to use income-based repayment if you run into trouble.

Honest lenders will inform you about the benefits you might be giving up, but you also have to look out for yourself, too. Chopra said.

Know the terms

Its also important to understand the difference between consolidation and refinancing. Consolidation means taking a group of loans and rolling them into a single loan to make one payment each month. Thats convenient, but you wont always get a lower interest rate.

For some borrowers, those capable of accelerating payment on some of their loans, it may be better not to consolidate, said Mark Kantrowitz, a nationally recognized expert on student loans and publisher of Edvisors Network. Your best bet may be to only refinance the loans with the highest interest rates and dont touch the ones with low rates. That way you can pay off the highest interest rate loans quickly and have a lower average interest rate than you would have if you consolidated.

And names can be confusing. For instance, with the Wells Fargo Private Consolidation Loan, you can consolidate several loans or refinance a single loan.

Weisbaum is a CNBC contributor.

 CNBC is a USA TODAY content partner offering financial news and commentary. Its content is produced independently of USA TODAY.

Keeping Your Credit Cards in the Loop

A highly promising — and imperfect — new mobile wallet solution called Loop Fob went on sale for $39 recently from Boston start-up LoopPay. Loop is compatible, the company claims, with 90 percent of the magnetic stripe credit readers that are already out there, which may help it overcome the mobile payment hurdle of retail investment.

Seismic data provider Global Geophysical files for bankruptcy

March 26 (Reuters) – Global Geophysical Services Inc
, a provider of seismic data to oil and gas companies,
filed for bankruptcy due to heavy debt and said it was seeking
court approval for $60 million in debtor-in-possession
financing.

The company and some of its units made a Chapter 11 filing
in the US Bankruptcy Court in Corpus Christi, Texas.

Global Geophysical said on Tuesday that its foreign
subsidiaries were not included in the bankruptcy filing.

The company continued to be burdened by significant debt
incurred over the past several years, Chief Executive Richard
White said in a statement.

He, however, said Global Geophysical had a strong order
backlog and was seeing increasing demand for its services.

Demand for seismic data, which creates images of the earths
subsurface and helps companies to identify oil-and-gas-bearing
structures, has risen as energy companies spend more on
exploration in remote and difficult areas.

Global Geophysical had warned of a liquidity crunch earlier
this month.

The companys shares closed 1 percent lower at $0.47 on the
New York Stock Exchange on Tuesday. The stock has fallen about
85 percent in the six months to Tuesdays close.

(Reporting by Swetha Gopinath in Bangalore; Editing by Kirti
Pandey)

RLPC-Energy Future Holdings lining up $9 bln bankruptcy financing

LONDON, March 27 (Reuters) – Embattled utility Energy Future
Holdings is lining up around $9 billion of
bankruptcy loans before an imminent bankruptcy filing, sources
involved in the matter said on Thursday.

The $9 billion Debtor-In-Possession (DIP) loan is in the
final stages of negotiation, the sources said. Credit agreements
have yet to be signed, but the deal is expected to be the
largest-ever privately funded bankruptcy financing, according to
Thomson Reuters LPC data.

Energy Future holdings, formerly known as TXU, was taken
private in October 2007 in the largest leveraged buyout ever,
and has struggled to manage its debt of more than $40 billion
ever since.

(Editing by Tessa Walsh in London and Michelle Sierra in New
York)

Feds Investigate GM For Bankruptcy Fraud, Ignore Own Behavior On Fannie And …

The federal government is apparently investigating General Motors General Motors to see if during its 2009 bankruptcy GM hid knowledge of ignition problems which recently spurred an enormous recall. This is a rather surprising case for the federal government to pursue both because of the absence of an obvious remedy and due to the federal government itself having perpetrated more serious fraud than this in roughly the same time period upon investors in Fannie Mae Fannie Mae and Freddie Mac Freddie Mac.

While it is becoming clearer that at least some at GM knew about this problem prior to the bankruptcy, the current GM is not the same company as the “old” GM that went through bankruptcy. Theoretically, parties will have to sue the old company, which has no worthwhile assets, and one would think the Feds would have to try to punish the old company, as well, for acts undertaken while it was the only GM around. Further, if GM had admitted to ignition problems during the bankruptcy, it assumedly could have placed at least some of the costs and liabilities associated with these problems into the old GM that was going bankrupt, thereby insulating the currently operating company from some financial risk.

Thus, it is a little perplexing to imagine what GM gained by the supposed subterfuge and how anyone is going to collect damages or penalties. In California, some class action lawyers are trying in federal court to go after new GM on these issues, but we will have to wait and see if a judge allows that approach.

If new GM can be sued, what is the case? Creditors of the old GM would have received even less if additional liabilities had been disclosed, so they were not defrauded. People who had serious adverse incidents due to the specific ignition issue certainly appear to have cases against GM, but the new GM has done nothing to imply they are unwilling to address those cases. If the new GM tells these people, sorry all the money from old GM is gone and we are not going to pay you, then a bankruptcy fraud would emerge (from the act of hiding from somebody that they are a creditor who should be trying to collect money from the bankrupt company’s limited assets).

Riverhounds file for bankruptcy protection

Owners of the Pittsburgh Riverhounds professional soccer team and Highmark Stadium in the South Side filed this week for Chapter 11 bankruptcy protection, blaming stadium construction debt that ballooned over its budget.

The filing will not diminish the Riverhounds schedule, an affiliated community soccer academy or other daily operations for the otherwise-healthy team, executives said.

The owners need to reorganize and alleviate their debt to keep the organization growing and make the city an attractive potential home for Major League Soccer teams, they added.

“To put the company in a position where that can be considered, we have to right the ship and make sure we have a model that can work long-term,” said Riverhounds CEO Jason Kutney. “We want to break free of these shackles that have held this company hostage the last few months and restructure debt to the point that we can fully engage these (growth) models.”

One of two ownership groups, Riverhounds Acquisition Group LP, has between 50 and 99 creditors, $1 million to $10 million in liabilities, and between $500,000 and $1 million in assets, according to court filings. The other, Riverhounds Event Center LP, lists 50 to 99 creditors, $10 million to $50 million in liabilities, and $1 million to $10 million in assets.

The voluntary filing under Chapter 11 could allow the owners to reduce their overall debt and emerge stronger, which is the goal of the process, said bankruptcy expert David Duffus.

“Coming out on the back end, it ought to have some breathing room,” said Duffus, a partner in forensic litigation and evaluation services at ParenteBeard, Downtown. He called construction-related burdens “a very common problem.”

Riverhounds and stadium majority owner Terrance C. “Tuffy” Shallenberger could not be reached for comment. In a prepared statement, he called the bankruptcy filing necessary “to ensure the long-term viability of the companies.”

Shallenberger became majority stakeholder in the team and stadium last year to help strengthen the operations, Kutney said. The ownership groups owe Connellsville-based Shallenberger Enterprises and Shallenberger Construction Inc. more than $100,000, the bankruptcy filing shows.

Neither an attorney representing Shallenberger nor Kutney would identify other stakeholders in the controlling partnerships.

Kutney said problems arose from construction of the 4,000-seat stadium in 2012. To make sure it would open for the 2013 season, contractors sped up work and rang up charges not included in the $10.6 million budget, he said.

He did not know by how much the final costs outpaced the budget. But the end result is a heavier debt that “accelerated beyond the capacity of the operations,” Kutney said.

It isnt clear how long the private companies might remain under bankruptcy protection, he said.

Formed in 1999, the Riverhounds will begin their 2014 season on Saturday in Orlando, Fla., according to the team. The first home game is set for April 12 at Highmark Stadium, where average attendance last year exceeded 3,000 people per game. The team plays in the third tier of the American Soccer Pyramid.

The affiliated Riverhounds Academy training programs, which attract about 1,250 families, will not cut back because of the bankruptcy, Kutney said. Nor will the teams summer camps, which enroll about 1,000 youths.

The companies plan no layoffs among roughly 20 full-time employees for the Riverhounds and stadium.

Shallenberger will provide interim financing to keep the team and stadium running, the companies said.

“We want our employees, fans and sponsors to know that our commitment to growing the game of soccer and to realizing the full potential of Highmark Stadium will continue during the reorganization process,” he said in the statement.

Adam Smeltz is a Trib Total Media staff writer. Reach him at 412-380-5676 or asmeltz@tribweb.com. Staff writer David Conti contributed to this report.

CBN Unveils Framework for Mortgage Refinance Company

Sanusi Lamido Sanusi

. Pegs capital base at N5bn

Obinna Chima

As part of efforts to ensure the success of the recently inaugurated Mortgage Refinance Company (MRC), the Central Bank of Nigeria (CBN) Thursday introduced a regulatory and supervisory framework for the operation of the company.

The 38-page document posted on the central banks website yesterday stated that the MRC shall commence operations with, and maintain at all times, a minimum paid-up capital of N5 billion.

It also stated that a MRC should maintain, at all times, a minimum ratio of core capital to total assets (leverage ratio) of not less than five per cent.

In addition, the framework stipulated that the core or tier 1, capital of the company should consist of paid-up capital and reserves plus retained earnings, statutory reserves, other reserves and published current earnings, less goodwill and other intangible assets and identified losses, or as otherwise defined by the central bank for licenced financial institutions.

The establishment of an MRC is primarily aimed at increasing the liquidity within the mortgage sub-sector and availability of mortgage credit in Nigeria, reduce mortgage and related costs, and make residential housing more affordable.

The benefits of such mortgage liquidity facilities are globally acknowledged. As a financial institution, the MRC would be under the regulatory and supervisory purview of the CBN.

The document added: The MRC shall maintain at all times a minimum ratio of qualifying capital to the value of its risk-weighted assets of not less than 10 per cent. Asset risk weights to be used for this computation shall be those prescribed by the Bank for licensed banks.

Nonetheless, the central bank stated that the MRC would not be allowed to granting consumer or commercial loans; originate primary mortgage loans; accept demand, savings and time deposits, or any type of deposits; finance real estate construction; undertake estate agency or facilities management; provide project management services for real estate development and manage pension funds or schemes.

On the licensing requirement, the CBN explained that the procedures and criteria to be used in granting a licence to the MRC would be the same as specified for banks under the Banks and Other Financial Institutions Act, CAP B3, Laws of the Federation of Nigeria, 2004 (herein after referred to as BOFIA) and any other regulations issued by the Bank.

The ultimate responsibility for every MRCs operations shall be vested in its Board of Directors. The number of directors on the board of the MRC shall be a minimum of seven and a maximum of 15. The non-executive members must be at least twice the number of the executive directors at any point in time.

The Bank shall approve the appointment of each director who shall meet the qualifications for licenced bank directors as specified in the BOFIA, or as may be specified by the Bank from time to time, it added.

Continuing, it stated that executive directors of the MRC are expected to hold office for a fixed term of not more than five years and such term may be renewed only once, while non-executive directors would serve for a fixed term of not more than four years and such term may be renewed only twice.

It stated: For the avoidance of doubt, the maximum tenure of an executive director shall not exceed a total of 10 years while a non-executive director shall not serve for periods exceeding 12 years in total.

Any executive director who has served two 5-year terms may equally serve as Managing Director, if so appointed, for the maximum of two 5-year terms (a combined maximum of 20years).