Review Home Mortgage Finance Act – GREDA

The Ghana Real Estate Developers Association has called for a thorough review -or the replacement – of the Home Mortgage Finance Act, 2008, Act 770: the act that regulates home mortgage financing and related matters, to remove bottlenecks associated with the mortgage sector.

President of the association, Patrick Ebo Bonful, noted at a GREDA CEOs breakfast meeting that in spite of that law as well as the Borrowers and Lenders Act, it remains very difficult for banks and home finance companies to recover properties from defaulting customers.

For this reason, he argued, the banks are shying away from mortgage financing – even though the real estate industry thrives on the mortgage market.

He therefore called for decoupling of the Home Mortgage Finance Act, 2008 (Act 770) from the Mortgages Decree of 1972, because home mortgage finance is not the same as the conventional ‘mortgage’ system wherein the borrower of a commercial loan secures the same with a mortgaged property.

“What we want is an amendment to the Home Mortgage Finance Act, 2008 (Act 770) or, in the alternative, its replacement entirely to make it simple and unambiguous for easy interpretation and application by stakeholders – including the judiciary and law enforcement agencies,” Mr. Bonful said.

He added that the new law or the amended version should seek to remove all bottlenecks on the part of the mortgagee in order to make home mortgage finance attractive as an investment option.

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“When that legal framework is straightened out, investment will flow into the sector on its own. This is a whole value chain and we at GREDA are ready and willing to build more houses, and the buyers should be able to access mortgages to buy those houses.

“If there are no bottlenecks in that process, more houses will be built and the housing deficit, which is nearing 2 million units, will reduce automatically and the contribution of the housing sub-sector to the GDP of this country will grow significantly,” he said.

According to a World Bank Survey report covering the period 2006 – 2010, the depth of home mortgage finance as a contributor to GDP of Ghana was only about 0.4 percent as compared to 83 percent for the Netherlands, 81 percent for Great Britain, and 40 percent for Germany.

Mr. Bonful noted that the reason for the low contribution of home mortgage finance to the country’s GDP is simply because – in terms of size, depth, penetration and flexibility – investments in this segment of the real estate delivery value chain has significantly declined over the years.

“This is due, in part, to the extremely difficult and often laborious recovery regime the mortgagee faces in trying to recover homes from defaulting customers. A situation which, if not checked, threatens to cripple sales in the residential real estate space. Any efficient home finance mortgage market will require a legislative infrastructure that ensures smooth application in the processing of home mortgage finance transactions and foreclosures.

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“A home mortgage finance entity or mortgagee is a friend of the state – not a foe, and deserves deliberate state legislative protection. This will encourage more banks or investors to invest in home mortgage financing,” he added.

He also called for the development of a strong secondary market for home mortgage financing in the country, because of the bright prospects it holds for the economy in releasing liquidity to the mortgagee.

“For home mortgage financing to be attractive, it requires a secure, smooth, transparent and efficient land title registration process. The current situation where it takes between one to four years to go through the land title registration process is, to say the least, unacceptable; it foments illicit land transactions and creates unnecessary uncertainties for the mortgagee and by extension, therefore, the entire home mortgage finance system. The digitisation process should be fast-tracked as a matter of urgency,” he said.

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