By Godwin Anyebe
The National Pension Commission (PenCom) has explained how workers can use their retirement savings to obtain a residential mortgage.
A mortgage is a type of loan used to purchase or maintain a home, land, or other types of real estate.
Last year, PenCom issued guidelines on accessing retirement savings account (RSA) balance towards payment of equity contribution for a residential mortgage, but in its recent statement, the commission said many employees desire to own residential homes before exiting active employment.
Although, facts have emerged that a significant constraint for most employees is their inability to provide equity contribution to access a mortgage loan to own a house.
To proffer a solution to the challenge faced by employees, 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.
PenCom said RSA holders must go through various application, documentation and remittance processes in order to access their accounts to pay equity contributions for residential mortgages.
The processes are as follows: Obtaining an Offer Letter; Request for RSA Statement; Issuance of Mortgage Offer Letter; Verification by Mortgage Lender; Issuance of Mortgage Offer Letter; Review of Application by PenCom and Remittance of Approved Amount to Mortgage Lender.
Obtaining an Offer Letter
According to PenCom, the first step 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 must 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 commission said 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. But in such a case, each party shall apply to their respective PFAs with copies of the verified property offer letter.
At this stage, the PFA is required to issue a duly endorsed RSA statement to the applicant, which the applicant forwards to the mortgage lender.
Verification by Mortgage Lender
PenCom said after receiving the RSA statement, the mortgage lender has to verify if 25 percent of the applicant’s RSA balance will be sufficient as an equity contribution.
In cases where 25 per cent 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.
Issuance of Mortgage Offer Letter
PenCom said 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.
The commission said additional information required includes 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.
In addition, the mortgage lender is also required to provide evidence of payment of difference where 25 per cent 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 agency said.
“The applicant shall obtain and fill out an application form for 25 per cent 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% 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.”
Review of Application by PenCom
PenCom said it would review all applications submitted by PFAs and approve or reject the applications.
Where the commission declines to approve an application, it said it would communicate the reason(s) for its decision to the PFA.
Remittance of Approved Amount to Mortgage Lender
Upon receiving the commission’s approval, the PFA is required to issue payment instruction to its pension fund custodian (PFC) to remit the approved amount to the mortgage lender within two working days.
The commission 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.