The mortgage origination industry is under threat. Banks are cutting the commission they pay to mortgage originators. And that, in turn, is forcing originators, like ooba, Bond Choice and Betterbond, to prepare for lower profits – and consolidation in the sector. So how did the money-spinning industry of mortgage origination go from affluence, to near-collapse, in such a short space of time?
Well, blame the economic downturn, for one. Property prices continue their downward trend, and home loan approvals are all but drying up. Potential property buyers are not only waiting for the market to turnaround before looking to buy, but those that are in search of a home are having their bond applications mercilessly declined. The National Credit Act’s partly to blame. But according to Michael Bleby in Business Day, there’s also been a balance of power shift. While lenders used to throw credit at consumers, that’s changed, with banks now calling the shots.
Mike Greeff, CEO of Greeff Properties agrees that the role of banks has changed in SA: once money was freely available, and financial institutions “fought marketing duels to lure customers into their lending maw”. Back then some borrowers would have enjoyed mortgage rates as low as two percent below prime, or even more. Now they’re charging higher premiums – pushing up interest rates around one percent above prime to most new customers. At the same time, banks are also paying more attention to existing customers, rather than looking to snag new business.
So should potential buyers still go the mortgage origination route when they’re on the prowl for a new home? Well, first you must know how originators help buyers, and where their weaknesses lie. The role of mortgage originators includes canvassing the various lenders to find the best deal for you. Because the lenders pay the originators commission for bringing them new business, the service is free for you. You give the originator all the information it requires to apply on your behalf, in return for its research. But you must ensure you detail to the originator which banks and lenders they must include and exclude – and request they explain the advantages and disadvantages of each package to you, says The Mortgage Magazine.
According to Ben Seymour-Brown of ooba, by letting a bond originator do the home loan hunting for you, “you’ll be sure to get the best rate and know in advance how much you can spend – all at no cost to you”. And that’s particularly important during the global economic downturn: Saul Geffen, CEO of ooba, says in Business Times that because banks can push up their mortgage rates, it’s now more crucial to use originators. He says for every 0.5 percentage point concession to prime, a property buyer will save nearly R90 000 on a R1-million property over 20 years. The rules accompanying the National Credit Act also make it handy to work through an originator – with the tons of paper work demanded by the NCA simplified by the originator.
As published in issue 85 of .
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