Still coining it

Posted On Thursday, 14 June 2007 02:00 Published by eProp Commercial Property News
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Over the past seven years mortgage originators have not only created an entirely new home loan distribution channel for banks but have positioned themselves as one of the most influential segments in SA's massive R728bn (latest SA Reserve Bank figures) mortgage lending industry

Rhys Dyer

Anyone who thought that mortgage originators - the people who help buyers source the best mortgage deals from banks - would be nothing more than a flash in the pan, couldn't have been further off the mark.

Over the past seven years mortgage originators have not only created an entirely new home loan distribution channel for banks but have positioned themselves as one of the most influential segments in SA's massive R728bn (latest SA Reserve Bank figures) mortgage lending industry.

The niche role that originators have created for themselves since 2000 is highlighted in a research report recently compiled by a South African specialist banking group. Up to 70% of all new mortgages are now generated through originators. The report says banks are paying originators commission of up to 2,3% of the value of each new loan sourced.

Given that the total growth in new mortgage business over the 12 months to end-March 2007 is estimated at R180bn, you can assume that the origination industry generated close to R3bn in commission over the past year.

The report shows that SA's origination industry is currently dominated by four players: BetterBond, MortgageSA, BondChoice and Loan Link. Though originators and banks still tend to have a love/hate relationship, it seems that the banks have finally accepted the fact that originators are here to stay.

After all, banks are hungry to grow market share and can't afford to alienate what's clearly become their most important source of new business. That wasn't always the case. When originators arrived on the scene in the late Nineties/early 2000s many had a less than amicable relationship with banks. Some mortgage lenders - notably the now defunct NBS - at the time accused originators of trying to hold banks hostage with exorbitant fee structures. Their commission structure is probably still a sore point for some banks but it seems they no longer have much of a say in what they will or won't pay originators, because the latter are effectively calling the shots. Despite expectations of increased competition forcing commissions down, the report in fact shows that dominant originators have been able to steadily raise their fees over the past few years. However, originators argue that their fees are justified considering the strong value proposition they offer to both clients and the banks. BetterBond CEO Kevin Lancaster says banks have always paid for the sourcing and processing of mortgages.

Says Lancaster: "Before - when that function was handled in-house by the banks - it was a fixed cost. Now that this business is outsourced to originators, fixed costs have merely been replaced by variable costs.''

Lancaster says originators have saved consumers millions over the past few years by forcing banks to become more competitive with regard to interest rates charged on mortgages. Originators have also removed the hassle factor for homebuyers by sourcing the best deals on their behalf. And clients are getting that service free.

Says Lancaster: "Before the advent of originators, homebuyers would have been lucky to negotiate a discount of 0,5% below prime. Today banks are prepared to offer discounts of up to 2,5%.''

WILL BANKS BE TRUMPED AGAIN?

MORTGAGE originators pose a new threat to the banks: they now plan to take them on in the highly profitable homeowners' insurance arena. With the implementation of the National Credit Act (NCA) this month, banks will no longer be allowed to force their own insurance products on mortgage clients. The latter is compulsory for every South African who buys a home with bank credit.

From 1 June new mortgage clients have the right to shop around for the insurance policy of their choice.

And originators are wasting no time using that opportunity to create new revenue streams for themselves.

MortgageSA has already launched its own building insurance product to compete with those traditionally offered by banks. Others are bound to follow.

MortgageSA executive director Rhys Dyer says it's high time that the insurance pricing monopoly historically enjoyed by SA's banks ended. He says that homeowners will be able to negotiate "significantly" cheaper insurance premiums on bricks and mortar in the open market than the rates traditionally offered by the banks' insurers.

Dyer estimates that increased competition in the market will save homeowners R650m/year in insurance premiums. He says being able to offer homeowners insurance on residential property makes for a sound strategic fit for MortgageSA, as its business model is based on removing the hassle and paperwork for clients.

Says Dyer: "It dovetails with our mortgage protection and household insurance offerings and takes us closer to a one-stop, personal finance product and advice platform''.

Last modified on Wednesday, 12 March 2014 15:00

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