Cyclical changes in housing property sectors demand disciplined margins and, ultimately, high discipline risk management. The traditional approach of South African Banks towards lending practices is what marginalised the impact of the global economic slowdown. Unlike international banks in the UK and US, SA’s conservative banking practices helped in avoiding excessive exposures in structured and special purposes instruments. Extending this cautious approach further is the compliance with the requirements of the National Credit Act (NCA), that offers protection of consumer rights, that at Nedbank Home Loans is viewed as a ‘non-negotiable imperative’. “The NCA forms an integral part of what governs lending activities in South Africa and is firmly vested in the manner in which Nedbank conducts lending activities. Nedbank will proactively participate in debate with governing bodies in support of improving the intent of the act.” says Keith Hutchinson, Managing Executive Retail Secured Lending. What further protects consumers is ongoing education; ensuring clients can afford re-payments, as well as client awareness of rights and responsibilities. Not only does Nedbank Home Loans ensure that clients are paying fair prices for properties, it also protects clients with additional products such as retrenchment insurance. The proactive approach by SA’s major banks to alleviate the effects of the distressed homeowner market has resulted in tailor-made solutions. At Nedbank Home Loans, in order to effectively disburse of properties acquired at sale in executions, a unique Asset Disposal framework was developed whereby dedicated Asset Managers are assigned to manage portfolios of re-possessed properties. The primary objective of an Asset Manager is value optimisation within a predefined framework. The Bank says it is cognisant of managing the level of buy-ins in relation to future market values and propensity of take-up. Nedbank Home Loans’ decision to proceed with a bank buy-in will only be opted for once it has exhausted all proactive means of assisting a client. To reduce the number of re-possessions in future, innovations have been developed that also protect credit records of bank clients. Dedicated ‘pre-sale in execution’ programmes are designed for clients where tailored solutions provide for an upside in terms of the debtor being exempt from being listed as a default payer should the sale be concluded as per agreed terms and conditions prior to the bank taking legal action. The solution is aimed at minimising financial losses to both the bank and client. Current Nedbank programme options comprise varied solutions including the Nedbank Assisted Sales Program, Loan Restructuring, Tailored Interest re-payment and capital re-payment, Upfront Loss Program and the Private Treaty Sales program. All available options are positioned to minimise the potential buy-in of the asset by the Bank. Hutchinson says although local banks are seeing higher demand for entry-level housing as well as an increase in the number of homes produced by affordable housing developers, current activity in this segment of the market remains lower than five years ago. The most significant contributing factor is affordability as a result of increased costs of entry-level properties. In 2004, the cheapest entry-level property that cost R100 000 now costs approximately R250 000. For banks to operate in the affordable housing market, additional capabilities are required, both to manage costs and to adequately serve the needs of clients. This includes geographic spread, as a lot of the demand comes from previously underserviced areas. Other capabilities include borrower education, innovations to better assess risk and improving efficiencies to make home loans more affordable. Nedbank supports Government’s partial subsidy programme to the local GAP market to assist borrowers who cannot afford saving for deposits or afford full repayments on new homes. For this category of borrower the bank will consider the size of a subsidy when assessing an application for a mortgage bond, relieving the borrower of the necessary deposit. For lower income group customers to maintain a healthy loan re-payment history, banks have come to the party by offering fixed interest rates to protect clients from potentially crippling effects of rising interest rates. Hutchinson said: “We believe that fixed rate products are very important to lower income groups as they offer protection from interest rate increases. The short-term cost of these loans is made up for by repayment stability, but this also requires client education.” Hutchinson says the way forward in the home loans industry, not only during the lowest interest rate period in 30 years but also in the longer term, would be the enhancement of responsible change disciplines. He says: “Assisting clients through a unique client-centric value proposition will enable sustainable growth across all segments and, in particular, the affordable housing sector.” Article courtesy of , and is taken from their November/December 2010 issue.
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