Mortgage Origination Drop in SA

Drop in Mortgage Originations

An article in Business Day has drawn attention to the fact that banks are declining more and more mortgage applications, which combined with the implementation of the National Credit Act has resulted in significantly fewer mortgage originations in the market.

Willie van Aardt, CEO of Finbond, a mortgage origination and consumer finance company said this week that the National Credit Act, which came into force in June last year, has resulted in more loans being declined due to the fact that customers no longer pass the banks’ credit criteria under the Act.

According to van Aardt, the global subprime and liquidity crises being experienced by international banks has had an impact on local banks, which are now introducing stricter credit criteria and “behaving more cautiously”.

Before the Act’s implementation, Finbond reported that 37% of its mortgage applications were declined by the four big banks, but since then 42% were declined. Van Aardt said that 2008 had already seen 45% declined.

Finbond released its financial results for the year on Tuesday, said that a shrink of 40% in mortgage origination volumes was seen by the group towards the end of last year. Finbond still showed strong results, however, achieving an operating profit of 6.9% above that forecast, but van Aardt said that this was likely due to the company’s strong diversification into the consumer finance market.

When Finbond first listed on AltX in June 2007, the total contribution of mortgage origination and related activity to net profit after tax was about 70%, with consumer finance making a contribution of 30%. Since then the company has expanded into consumer financing, with the result that mortgage activities are down to just 45.5% net profit after tax and consumer finance is up to 54.5% for the year to February.

Ooba (formerly Mortgage SA), the mortgage origination and financial services intermediary said on Tuesday that volumes of mortgage origination in the market had slipped by more than 30% since the National Credit Act came into force.

CEO Saul Geffen suggests that the interest rate hike in June last year coincided with the implementation of the Act and resulted in a “tipping point”. He added that, “As interest rates have continued to climb and affordability negatively impacted, it’s got worse”.

Geffen also indicated that Ooba’s statistics show the decline in mortgage applications by banks for credit and affordability reasons had increased by 50% since the Act. “The increase in the number of nonperforming loans on banks’ books and their capital constraints because of the credit crisis mean stricter credit criteria,” he said.

Across the mortgage origination market, Geffen said that there had probably been a 10% increase in the declines made by banks for mortgage applications since June. Jan Kleynhans, CEO of FNB Home Loans, reported that in the past two or three years, higher interest rates had led to a significant increase in consumer defaults on debts.

While the Act is preventing consumers from becoming over-indebted, this is not just true of mortgage lending; it concerns all lending (Kleynhans). “The banks are just doing their job of ensuring that people do not take on debt they can’t afford,” said Kleynhans.

The information in this article is courtesy of Nick Wilson (“Finbond originating fewer mortgages”, Business Day, 28 May 2008).

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