BACKGROUND AND EVOLUTION OF MORTGAGE ORIGINATION IN SOUTH AFRICA
Mortgage origination entered the South African mortgage bond and property industry in 1999. In 2001, after only two years in operation, it was estimated that Mortgage Originators already accounted for approximately 40% of total mortgage originations, with this figure growing to around 60% by 2007. It is suggested that more than 80% of mortgage bonds are now originated through the mortgage origination industry.
The mortgage origination industry has maintained a significant foothold in the broader mortgage industry by adapting to changes in the housing markets and technology, to create an efficient and beneficial service to prospective South African homebuyers and other Consumers seeking mortgage finance, for example, second bond and further advances.
Mortgage origination success rests on its 3-fold value proposition to its stakeholders that can succinctly be said to include:
- Consumers: Affording Consumers:
best access to home loan credit
best home loan pricing and terms, as well as
prequalification services and other buyer education; - Property Practitioners: Offering Property Practitioners a higher probability of securing sales which are dependent on mortgage bond finance;
- Banks: Offering credit providers outsourced variable cost distribution.
Off the back of the 3-fold value proposition, the mortgage origination industry’s strong growth drastically altered the South African mortgage industry landscape, which had been traditionally dominated by the major commercial banks operating in a siloed manner. Effectively, the bond origination industry, as it expanded its value proposition to Consumers, caused positive disruption in a historically less competitive market, significantly benefitting the property industry.
Before mortgage origination was introduced into the property industry, each Consumer had to apply to their bank or lending institution in person for their mortgage bond finance. Subsequent to the advent of the mortgage origination industry, a Consumer can apply to more than one bank simultaneously using the services of a Mortgage Originator and do so without any obligation or cost.
THE MORTGAGE ORIGINATION PROCESS (INCLUDING PREQUALIFICATION)
- The mortgage origination process historically commenced upon the successful conclusion of an Offer to Purchase between a Seller and Purchaser. Of course, mortgage origination is a wider service than linked to a property sales transaction, i.e. the finance secured by the mortgage bond over residential property may be unrelated to a property purchase.
- It has become common practice in recent years for Mortgage Originators to assist Consumers by conducting a “prequalification” even before viewing prospective properties for sale.
- A prequalification for a mortgage bond is a preliminary assessment of a Consumer’s financial situation, providing an indication of how much the Consumer might be able to borrow, and assisting the Consumer to understand their credit score and affordability before formally applying for a mortgage bond.
- Prequalification therefore assists Consumers and naturally acts as an informative tool for Property Practitioners to ensure that properties specifically within the Consumer’s means are presented and considered for potential purchase.
- Upon the conclusion of an Offer to Purchase, should the prospective Purchaser require mortgage bond finance, an application could be made directly by the Purchaser to his/her bank of choice, or the Purchaser can elect to secure the services of a Mortgage Originator to apply on his/her behalf to the bank of his/her choice.
- A Mortgage Originator supplies the Consumer with the necessary application form, together with a complete list of supporting documents which must be submitted to the lending institution for assessment and determination of whether mortgage finance may be granted.
- The Mortgage Originator provides additionally a buyer education service, as well as guidance on the lenders most suited to the Consumer’s circumstances (affordable housing customer, first time buyer, young professional, self-employed, buy-to-let customer, etc.)
- The Mortgage Originator, due to technological advances in integration with the major banks in South Africa are able to submit a single application, together with the relevant supporting documentation to multiple banks simultaneously.
- After consideration and assessment by the lending institution, the outcome of the mortgage loan application will be communicated to the Consumer and/or the Mortgage Originator. All home loan quotations received by the mortgage originator are submitted to the Consumer for consideration.
- The Consumer will either accept or decline the granted mortgage loan offer from the lending institution, and the mortgage originator will negotiate on behalf of the Consumer for the best pricing and home loan terms available to that Consumer.
- Should the home loan application be declined or a lower offer received, the Mortgage Originator will motivate an application to the credit department of the lending institution.
- If the required outcome is not achieved, the Mortgage Originator will then escalate the application, or if necessary, engage in arbitration on behalf of the Consumer with the lending institution with regard to the application submitted, thereby enhancing the Consumer’s prospects of accessing home loan finance and supporting the Property Practitioner in closing their sale.
- Once the Consumer accepts the final grant offered by lending institution, a Conveyancer will be appointed by that lending institution to attend to the registration of the mortgage bond or covering security on its behalf.