Mortgage Notes: The Real Estate Finance War Part 1

As the real estate finance industry continues to drive the Nigerian non-oil economy to a very large degree, I wanted to call attention to the ongoing difficulty faced by mortgage companies in originating loans from the everyday citizen in the country. Mortgages are still seen as a very exotic product, so elite and complicated, that pretty much only the ‘yuppies’ and high level professionals are supposed understand the guidelines enough to want to brave a foray into that world of lending (or so the layman thinks).

This situation is not at all helped by the fact that the language used in the real estate industry can be so highfaluting, that it actually increases a prospective borrower’s trepidation rather than educating to calm his fears. I mean, I hold a Master’s degree in law, and even I am sometimes thrown by the sheer number of ‘isms’ I have read in some paragraphs of real estate marketing materials.

It might be amusing to me, but I assure you it is one of the major reasons for the slow growth in the Nigerian real estate finance industry. So…we really need to wake up and smell the bacon. We are piling difficulty upon difficulty without even stopping to recognize the problem. We are marketing sophisticated products to laymen consumers as if we are the ones the programs are targeting. And we are doing this in a culture that is intrinsically horrified at the thought of being in debt for any purpose, and especially not for the purchase or construction of a family residence.

Growing up in Lagos Nigeria, I remember my father building his home. I remember the painstaking block by block process.  It took literally 4 to 5 years to complete the building, but I also remember the great pride with which he held the ‘housewarming’ ceremony. We had a huge party with prayers, music, food and drink, and he was the proudest man in the room. You see in those days, when you finished your building you owed zero on it. No mortgage, no line of equity, no credit card balances, nothing.  In fact, it was a huge taboo to build with debt, which was to be avoided at all costs. Even after completion, taking a loan against your home was such a shameful thing that such loans were kept completely secret, and the homeowner would not rest until the loan was paid off in full.

Here in the US, only a truly conservative home owner labors to pay off a mortgage in full.  The more usual thing is for a home owner to simply pay their mortgage note every month and keep the loan on the home. In fact, even multimillionaires continue to carry mortgages on their properties, and the principle of “using other peoples’ money) is widely touted as being financially savvy.

Contrast this to a culture where, even at major events like weddings and funerals, we are singing songs proclaiming that not a penny of the monies expended, came from a loan. The difference is in the history regarding credit. Credit in the US is seen as a normal part of life, and in fact, you may be denied for a mortgage if you have no open lines of credit showing payment histories from which your character (ability and willingness to pay) can be determined.  A credit score is required for a mortgage, and the credit system does not generate a score without active trade lines. “Formal” credit has been around in the US since the first credit cards showed up in abut 1951, and a rich database has been developed since that time to establish a robust and widely accepted credit market.

In Nigeria, the concept of credit is still very much in its infancy, and we are still unable to access major credit cards unless we are high income earners and have jumped through multiple hoops to qualify.  The majority of the general populace does not understand credit, and simply want nothing to do with it. Yet because we are in a global economy, it is vital to industry that credit transactions take a foothold and become widely accepted. One therefore wonders how in the face of all this, we are not making our products extra simplified.

I have interacted with industry marketing professionals who have agreed completely with my viewpoint on this topic, but feel powerless to do anything about the problem because their job is only to go out and market what they are instructed to. I consider this a pretty weak argument because, again, I believe that change should always come from the bottom up.

The sheer lack of relevant training is one of the main factors causing this problem.  Lack of faith is another.  I know loan marketing officers who will not even take certain loans from their own institution, yet they make their income from selling those same products to prospects. If you have no confidence in the products you are marketing, it quickly becomes apparent to your customer, no matter their level of education. In essence, if you would not use the product, don’t sell it, get another job.

A very dear friend of mine in the US wealth investment industry gave me one of the best pieces of advice I have received in a long time.  He said “When marketing to a prospect, use language that your grandmother would understand” or, as I have told every new Loan Originator, “Assume you are talking to a kindergartner”.  (Thanks Gulio!).   I think it would make sense in a market that is already extremely nervous about your product, for you to communicate the product in the most simplistic terms possible… and all the “optimizations” and “utilizations” and “collateralizations” in your presentation will absolutely not help.

Simplify, simplify, simplify, and watch your business increase exponentially (sorry, I couldn’t resist…).

Please follow Nike Osilaja on Twitter @NikeFinancePro, connect with me on LinkedIn (Adenike Fasanya-Osilaja) for more of her publications