Mortgage Origination in South Africa: Role and Regulation Overview
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Origination industry & the Property
Practitioners Bill
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Mortgage originators are financial services providers operating between banks
and home buyers (“bond broker” is a US term not commonly used in South
Africa)
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Originators play a pro-consumer role :
by advising and assisting consumers to submit home loan application to more
than one bank
thereby increasing consumers access to competitive credit (pricing and terms)
by offering choice
•
Origination has increased transparency in the home loan lending market, thereby
increasing rate and credit terms competition between banks to the benefit of
consumers
•
The mortgage bond related to a home purchase may be the single largest
financial transaction for a consumer in their life. Originators’ services
unquestioningly empower the consumer
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Mortgage origination is regulated under s3(1)(g) of the Financial Sector
Regulation Act as a “
financial service
”:
“
financial service
” means
‘
a service related to the provision of credit
’
“
financial product
” means
‘
provision of credit provided in terms of a credit
agreement regulated in terms of the National Credit Act
’.
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A mortgage loan / home loan is a “financial product” under the National Credit
Act
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This has been confirmed by the Financial Sector Conduct Authority (FSCA)
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Dual regulation is inappropriate, and was seemingly not intended
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The definition of “
bond broker
” in the Bill excludes “
persons regulated under the
Financial Services Board Act, 1990
”
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At the time of the first drafting of the Bill:
The legislators clear intent was to avoid dual regulation
origination was not regulated by the Financial Service Board Act – hence the need
for regulation
•
Subsequently, the Financial Services Board Act (1990) has been repealed and replaced by
the Financial Sector Regulation Act (2017)
•
The result is that origination is now regulated by the Financial Sector Conduct Authority
(FSCA) and the need to regulate origination under the Bill has fallen away
•
Origination will be excluded in any event when the exclusion in the Bill is updated to
refer to the in-force Financial Sector Regulation Act, rather than the repealed FSB Act
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In any event, we would submit that regulation of mortgage origination is more
appropriate under the Financial Sector Regulation Act (2017) than the Bill.
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The product is a mortgage bond and a financial product. The property is simply the
security for the loan
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Bond brokers DO NOT
Give property related advice or offer property for sale of leasing
Receive property or sole mandates or charge fees / commissions to home buyers
Receive funds from home buyers or hold or operate trust accounts
•
Bond brokers DO
Offer a financial product regulated under the National Credit
Are included under section 163 of National Credit Act in regard to disclosures
Are now regulated by the Financial Sector Conduct Authority
View of the Select Committee of Finance
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If originators are to be included in the Bill (which we submit they should
not be given the resultant dual regulation), then it cannot be done as an
afterthought
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The drafters will need to include:
A definition of “
financial transactions
” as those are clearly different
to “
property transactions
”
A second certification that does not require trust accounts
Different training requirements, i.e. financial rather than property
Different transitional arrangements, as there is no existing regulation
under the Estate Agents Affairs Board
Different codes of conduct, as origination and real estate operate in
different industries, with significantly different codes of conduct
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A property practitioner may not—
(a) …
(b) enter into any arrangement, formally or informally, whereby a
consumer is obliged
or encouraged
to use a particular service provider
including an attorney to render any service or ancillary services in
respect of any transaction of which that property practitioner was the
effective cause.
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Originators:
Play a valuable financial access role for consumers
Provide customers with home loan quotations to compare and thereby
facilitate transparency and competition between lenders
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Real estate agents play an important buyer education role in regard to origination
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Section 57(1)(b) of the Property Practitioners Bill will operate in a manner that
has the unintended consequence of having a
chilling effect
on buyer education
by estate agents as there is not a bright line between “
offering information
” on
available services and “
encouraging
”
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Appropriate qualifications can easily be included into section 57(1)(b), for
example, encouraging “
for reward
” or “
in the absence of good cause
”
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“Obliging” consumers should be prohibited as that limits consumer choice
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Preferably the word “
induced
” could be substituted for the word “
encouraged
”
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This Powerpoint is to facilitate MORCSA’s presentation to Parliament
on Tuesday, 4 September 2018
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A full and comprehensive submission has previously been submitted
and remains the view of MORCSA
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Thank you for the opportunity to make this presentation
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Mortgage originators, key players in the home loan industry, connect banks and consumers to facilitate competitive credit access. The regulatory landscape, governed under the Financial Sector Regulation Act, ensures transparency and consumer protection. The issue of dual regulation raises concerns, as the evolving regulatory environment impacts the oversight of mortgage origination practices in South Africa.
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Presentation Transcript
Mortgage Origination Council of South Africa Mortgage Origination Council of South Africa (MORCSA) (MORCSA) Origination industry & the Property Practitioners Bill
What are mortgage originators / bond brokers What are mortgage originators / bond brokers Mortgage originators are financial services providers operating between banks and home buyers ( bond broker is a US term not commonly used in South Africa) Originators play a pro-consumer role : by advising and assisting consumers to submit home loan application to more than one bank thereby increasing consumers access to competitive credit (pricing and terms) by offering choice Origination has increased transparency in the home loan lending market, thereby increasing rate and credit terms competition between banks to the benefit of consumers The mortgage bond related to a home purchase may be the single largest financial transaction for a consumer in their life. Originators services unquestioningly empower the consumer
Existing regulation of mortgage origination Existing regulation of mortgage origination Mortgage origination is regulated under s3(1)(g) of the Financial Sector Regulation Act as a financial service : financial service means a service related to the provision of credit financial product means provision of credit provided in terms of a credit agreement regulated in terms of the National Credit Act . A mortgage loan / home loan is a financial product under the National Credit Act This has been confirmed by the Financial Sector Conduct Authority (FSCA)
Submission: Dual regulation is inappropriate Submission: Dual regulation is inappropriate Dual regulation is inappropriate, and was seemingly not intended The definition of bond broker in the Bill excludes persons regulated under the Financial Services Board Act, 1990 At the time of the first drafting of the Bill: The legislators clear intent was to avoid dual regulation origination was not regulated by the Financial Service Board Act hence the need for regulation Subsequently, the Financial Services Board Act (1990) has been repealed and replaced by the Financial Sector Regulation Act (2017) The result is that origination is now regulated by the Financial Sector Conduct Authority (FSCA) and the need to regulate origination under the Bill has fallen away Origination will be excluded in any event when the exclusion in the Bill is updated to refer to the in-force Financial Sector Regulation Act, rather than the repealed FSB Act
Regulation under Regulation under FSR FSR vs the Bill vs the Bill In any event, we would submit that regulation of mortgage origination is more appropriate under the Financial Sector Regulation Act (2017) than the Bill. The product is a mortgage bond and a financial product. The property is simply the security for the loan Bond brokers DO NOT Give property related advice or offer property for sale of leasing Receive property or sole mandates or charge fees / commissions to home buyers Receive funds from home buyers or hold or operate trust accounts Bond brokers DO Offer a financial product regulated under the National Credit Are included under section 163 of National Credit Act in regard to disclosures Are now regulated by the Financial Sector Conduct Authority
Round peg in a square hole Round peg in a square hole If originators are to be included in the Bill (which we submit they should not be given the resultant dual regulation), then it cannot be done as an afterthought The drafters will need to include: A definition of financial transactions as those are clearly different to property transactions A second certification that does not require trust accounts Different training requirements, i.e. financial rather than property Different transitional arrangements, as there is no existing regulation under the Estate Agents Affairs Board Different codes of conduct, as origination and real estate operate in different industries, with significantly different codes of conduct
Section 57(1) of the Bill Section 57(1) of the Bill A property practitioner may not (a) (b) enter into any arrangement, formally or informally, whereby a consumer is obliged or encouraged to use a particular service provider including an attorney to render any service or ancillary services in respect of any transaction of which that property practitioner was the effective cause.
Origination is a pro consumer service Origination is a pro consumer service Originators: Play a valuable financial access role for consumers Provide customers with home loan quotations to compare and thereby facilitate transparency and competition between lenders Real estate agents play an important buyer education role in regard to origination Section 57(1)(b) of the Property Practitioners Bill will operate in a manner that has the unintended consequence of having a chilling effect on buyer education by estate agents as there is not a bright line between offering information on available services and encouraging Appropriate qualifications can easily be included into section 57(1)(b), for example, encouraging for reward or in the absence of good cause Obliging consumers should be prohibited as that limits consumer choice Preferably the word induced could be substituted for the word encouraged
Morcsas Morcsa s full submission full submission This Powerpoint is to facilitate MORCSA s presentation to Parliament on Tuesday, 4 September 2018 A full and comprehensive submission has previously been submitted and remains the view of MORCSA Thank you for the opportunity to make this presentation
Who is MORCSA Who is MORCSA
