Standard Bank was not accepting home loan business from ooba, formerly MortgageSA, this week or Bond Choice. Lawyers have been enlisted on either side as the fight between banks and their once-courted intermediaries starts to hot up.
It is understood from reliable sources that Standard Bank is seriously considering doing away with originators altogether as it finds ways to cut costs, though for now the emphasis has been on trying to get originators to chop their juicy commissions.
Senior bank managers are wondering whether originators add value. Some believe Standard Bank still has the capacity to deal with home loan clients directly, even though the entire origination industry mushroomed thanks to big banks outsourcing much of this work earlier this decade.
Bond Choice said it passed about R24bn in home loan business to banks in 2008, and about R8bn in business to Standard Bank, last year and the figure is expected to be similar for ooba.
South Africa's big banks have been reeling under a load of bad consumer debt thanks to rising interest rates and shrinking economic growth. Loan-to-value ratios have been tightened and home loan divisions have spent much effort on debt recovery rather than ways to grow their mortgage books.
Estate agents, meanwhile, reported that about half of all residential buyers had their home loan applications rejected last year - a major reason for a dramatic drop-off in sales volumes. Property prices have toppled into negative terrain and many jobs have been lost in the residential sector. Bond Choice was the first originator to be effectively targeted by Standard Bank. It then started working through ooba.
Mark Beckett, chief executive officer of Bond Choice, told Realestateweb: "Our Standard Bank agreement was the first of the major players to be renewed and hence would have been the first to be affected with commissions far lower than our competitors given the different contract terms. "However since then all originators have been served the same notice. The issue is that the banks want to see a reshaping of the industry," he said.
All originators are affected by Standard Bank's decision, said Beckett.
He said other banks have not yet given originators indications of their intentions, however "in one case the bank is looking for a cut (in commission) of approx 40%", said Beckett. It is "early days" to say how this will be agreed upon by originators, he said. Bond Choice is also experiencing difficulties with Absa, which is not accepting its business, however Beckett says he expects this to be resolved soon.
He said his organisation has been "in contact with all major groups as this is something that effects the whole industry including the real estate community who are vitally important to us as business partners".
"This is the biggest challenge to face the industry and in order to create a healthy and sustainable industry we need to work together on these issues," said Beckett. Ooba, Realestateweb has been told, is in the process of taking legal steps to enforce an agreement compelling Standard Bank to work with it.
Betterbond, said Beckett, also has a contractual arrangement and would have to consider its options. Beckett said originators are "working closely with all our business partners and have been in constant contact with all the banks".
"We believe an amicable solution will be arrived at in time," added Beckett. Patrice Rassou, a senior portfolio manager with Sanlam Investment Management, said that although originators have been responsible for bringing in billions of rands of business to big banks, the latest move by Standard Bank might be a good one for shareholders.
"You get rid of intermediaries who were taking profits, there is a move away from growth-at-all-costs to a focus on one's own customer base and, if all the banks follow, there will be less of a race to market share and more of a race to quality lending," he said. Mortgage expenses are in the billions, with debt levels looking worse for the bank than in 1998 - when interest rates shot above 20%, said Rassou.
This could be good for the Standard Bank share price, he said, though "not so good for the consumer". "From a consumer perspective there has been more transparency, more competition - but it has come at a price of (bank) profits." Rassou noted that the move was likely to put added pressure on property prices because there will be less credit available.
Although originators are an extra layer of mouths in the feeding chain, generally they have helped consumers find good home loan deals and are seen by many home buyers as offering a good service. Commissions are a percentage of home loan mortgage values and are roughly about 2% or more, with these often shared between agents and estate agencies.
Rassou said it is likely that banks may suggest intermediaries move to a scenario where commissions are not given up-front but staggered, so that if a debt goes bad in a certain period, the intermediary will not receive the full commission.
Standard Bank refused to answer questions on Friday. It would say only: "We are bound by a contractual duty not to disclose confidential information about our dealings with mortgage originators."
Article found and published byRealestateweb.co.za