Walk into any banking institution in the USA and the first thing that greets you when you enter is a big banner proclaiming the easy availability of their HOME EQUITY LOANS. Indeed, right from the airport into town when you come to any part of the USA, on billboards, radio, TV and newspapers, the advertisements and commercials are all touting the easy availability of home equity loans and the need for the American people to take advantage of the so-called "American Dream" -------- home ownership.
On the other side of the coin, come to good old mother Ghana and drive from Kotoka International Airport into town and pay a few visits to banking institutions in Accra. What do you find? Nothing about home equity loans! Indeed, on the few trips I have made home within the last few years, I have always wondered why. Recently, I decided to undertake my own study and here is what I found:
1. Banks in Ghana do not generally like to make home loans because the 30-year loan which is so popular in the US has too long a period for banks in Ghana to recoup their mortgage investment from the very unstable currency called the Cedi.. That simply means that one million cedis paid back to the bank 30 years from now is not worth the one million cedis borrowed today. This is not surprising as I have personally changed my US dollar during the last 5 years from as low as 5000 cedis-to-the-dollar to as high as 8800 cedis-to-the-dollar today. It is this rapid loss of value over time that scares banks away from making long-term home loans in Ghana.
2. Banks in Ghana prefer to make short-term loans, e.g. 1- to 5-year loans. Most of these loans are business loans to the import-export sector, equipment financing, automobile loans and short-term personal loans.
3. Banks in Ghana do not generally make home loans because of the difficulty of FORECLOSURE. As opposed to the US where it is very easy to REPOSSESS a home from the homeowner who defaults on the mortgage, it is virtually impossible to foreclose on a home in Ghana. Indeed, the reason why the term FORECLOSURE is not even in the lexicon in Ghana is because, traditionally back home, most people build their homes from the ground up AS AND WHEN MONEY IS AVAILABLE and it could take 5 to 10 years for a home to be completed. By the time it is all done, people practically own their homes FREE AND CLEAR!
WHAT IS HOME EQUITY? The equity in your home is the difference between the current market value of your home and the current mortgage loan balance you owe on your property. Therefore if you own your home free and clear (zero mortgage balance) it means you have one hundred per cent equity in your home which you can easily convert into cash to invest in business, buy another home for rental purposes, do improvements on your current home, buy a car, pay college tuition for your kids or take a well-deserved vacation!
It is this little phenomenon called HOME EQUITY financing that fundamentally sets the US economy apart from all other economies in the world. Indeed, Economists can argue all they want but every US homeowner knows that any time the US economy is in trouble, it is the equities in their homes that come to its rescue. This is why politicians all over the US keep putting pressure on the Federal Reserve to LOWER INTEREST RATES so that the millions and millions of home owners all over the US can tap into the equities in their homes and unleash into the economy the cash that is so badly needed to stimulate the sleeping giant!
WHICH WAY, GHANA? In the week that we celebrate the 47th birthday of our coming into nationhood, it is appropriate to ask why we have not learnt this very simple lesson from the developed economies in the last 47 years. Since 90 per cent or more of all homes in Ghana are owned FREE AND CLEAR, can we imagine what all that equity CONVERTED INTO CASH could have done for our economy for the last 47 years? Can we imagine what could happen to our economy today if ONE MILLION HOMEOWNERS could each obtain just $10,000 HOME EQUITY LOAN using their free and clear homes as collateral and investing that money into anything in Ghana? Do the Maths: that is TEN BILLION US DOLLARS of home equity loans to Ghanaian homeowners.. Think of what ten billion dollars can do in Ghana in one year and you get the big picture of what I am talking about here. Repeat that performance every year for 47 years and you can see how easily our country could have been transformed, jobs created, more taxes collected for the government and thousands of lives transformed in diverse ways. Would we have gone begging a fake IFC to give us a loan for our development?
The lofty goals above are not beyond our reach at all. We can achieve them! We need to strengthen our real estate laws to achieve these goals.. Banks must be sure who the real owners of properties are to feel secure enough to make loans on such properties. Title to properties MUST BE INSURED to provide enough security to mortgage lenders and facilitate a smoother and speedier property transfer mechanism. Moreover, our real estate laws must be firm enough to guarantee the ease of foreclosure in the event of loan default. Who wants to make a loan on a property that cannot be repossessed in time of loan default?
According to the Mortgage Bankers Association of America, total mortgage loan originations in the US in year 2003 was close to US $3.8 TRILLION! The projection for year 2004 is approximately US $2 TRILLION. Just imagine what that kind of money does to the US economy every year. Yes, truly, this is what sets the US economy apart from the rest of the world. Ghana can, surely, learn a lesson from this!!!
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