Issue 12 / June 2008

PREDATORY LENDING:
PROCEED WITH CAUTION

I am writing this newsletter on 1st June, the first anniversary of the implementation of the National Credit Act (NCA). This piece of legislation effectively changed the lending landscape in South Africa forever.

It has had a profound effect on the property industry. In retrospect, it seems bizarre that banks ever concerned themselves only with how much income a bond applicant earned and didn't give a damn about the client's expenses. Not only that, but once you'd secured a facility from Bank A you could use the same payslip to raise a bond at Bank B because the lenders didn't share information. The National Credit Act put a long overdue stop to all that.

The NCA was the first, but has not been the only factor to rein in the overheated property market over the past year. Steadily rising interest rates continue to put property out of reach for many, especially first-time buyers. We have seen rates rise by 4,5% in the past year and the Reseve Bank Govenor has hinted at a further increase of up to 200 basis points (2%) when the Monetary Policy Committee meets again on 12th June. Many of my clients will be sensing an uncomfortable déja vu as they remember how quickly rates shot up to 22% in 1997. Let's hope that the Governor's stance will be moderated by yesterday's announcement that, for the first time in the current cycle, credit growth slowed sharply over the 12 months to April.

PREDATORY LENDING These difficult times for property owners have led to a practice called Predatory Lending (or "Equity Stripping") which can broadly be described as a scheme offered by a "company" that comprises an abusive set of lending practices targeting home owners in financial distress. The company offering the scheme will essentially provide assurances that, through the sale of the home owner's property into the hands of the company, the home owner's financial difficulties will be resolved, they will be able to remain in their property as a tenant and, in time, will have the option to re-acquire the property from the company. The scheme is complex and space constraints prevent me from explaining it in detail here, but the likelihood of the home owner being in a position to re-acquire the property is remote. Companies engaging in these predatory lending schemes will predominantly target home owners who have a fair degree of equity in their property, but due to their financial position, are unable to source additional financing from the formal lending institutions.

OOBA BOOBA

In my last newsletter, I mused at how the finest creative minds in the land could have come up with the name "Ooba" in their rebranding of MortgageSA. "Ooba" is the registered trademark of an overseas baby furniture manufacturing company which holds the dot com domain, not to mention a virtually identical logo as the rebranded mortgage giant.



Since then, the entire industry has been convulsed with mirth over this R32 million excercise. Conspiracy theories abound as to how the name came about. I've said enough about the matter (this is, after all, my newsletter) but I invite those of you who are interested in how corporate identities are born to click here check out this article.

Personally, I don't believe for a moment that MortgageSA would perpetrate an identity theft along the lines advanced by some bloggers. Still, I suspect this ooba booba will in due course find its way into advertising textbooks and become compulsory reading for students.

At least it has given us something to smile about! For a stagnant property market shell-shocked by high interest rates and a nation with a lot to be gloomy about, life is not rich in comedy. We must cherish what there is of it and savour it during these tough times.

"The secret to creativity is knowing how to hide your sources"
Albert Einstein (1879-1955)

THE BOND MAN SCOOPS AWARD!