The Home Loan and Mortgage Disclosure Act 63 of 2000 was enacted in 2000.
It established an Office of Disclosure and requires of financial institutions to provide certain information regarding the provision of home loans to it. As end goal it aims to promote fair lending practices.
Functions of the Office of Disclosure include that it must, amongst other things:
• receive, analyse and interpret the information;
• investigate public comments on financial institutions relating to home loans;
• make information available to the public regarding whether or not financial institutions were serving the housing credit needs of their communities and must rate such financial institutions in accordance with this information;
• assist in identifying possible discriminatory lending patterns and assist any statutory regulatory body in enforcing compliance with anti-discriminatory legislation;
• report to the Minister annually in respect of its work during the preceding year, such report including an analysis of the performance of each financial institution in complying with the Act; and
• make recommendations to the Minister on any matter falling within the scope of the Act.
The Act also gives the Office of Disclosure a mandate to monitor financial institutions’ lending practices and patterns which is achieved through analysing information received from the financial institutions.
REASONS FOR THE AMENDMENT BILL
The Bill’s amendments have their beginnings in a memorandum of understanding signed by the Department of Human Settlements and the banking sector in which it was agreed to find ways to open access to the home loan market to lower-income brackets. In particular, the Department is looking for ways in which to give access to funding for those South African home seekers who earn too much to qualify for state-subsidised housing and too little to qualify for a home loan.
The Office of Disclosure noted that it experienced problems in obtaining the required data from the banks. For example, current practices are that financial institutions receive applications from mainly two sources – their walk-in customers and from intermediaries/brokers/mortgage originators. The latter
parties submit initial loan applications received from their clients to all financial institutions, to increase ntheir client’s chance of obtaining approval from at least one financial institution.
This however results in more than one financial institution reporting in respect of an individual application. Thus the numbers were distorted, both in respect of approved/declined applications as well as amounts.
Without correct data, it could not formulate policies or solutions to address the issues with access to home loans.
AIMS OF THE BILL
The suggested amendments introduced on 31 March seek to introduce
(i) changes to eliminate possible conflict of interest in the Office of Disclosures;
(ii) increased powers for this Office to interview officials at financial institutions, to impose penalties and to mediate complaints received from
the public; and
(iii) increased reporting obligations of financial institutions regarding the volume of home loan applications they receive, approve or decline as well as reasons why applications are declined.
IMPACT ON BANKS AND PROPERTY PROFESSIONALS
Some media reports have insinuated that the amendments will assist the poor to have increased access to finance (“Poor closer to securing home loans as property bill out for comment”.) This is not quite correct as banks assess all home loan applications in terms of the strict provisions of the National Credit Act and the Amendment Bill does not in any way changed or amended the provisions of the NCA. However, inasmuch as the Office has powers to investigate complaints or instances of discrimination against applicants, this might have some impact on access to finances for the poor.
The banking sector will feel the largest impact as the Bill increases their reporting/compliance requirements. This aspect also attracts the most criticism.
The Banking Association of SA noted that the association supported the drive to give more South Africans access to the home loan market within the parameters of responsible lending, but that the new requirements impose duplicate responsibilities on the bank in that the information is also provided to the National Credit Regulator in one form or another.
The association suggests that the Office of the National Credit Regulator and the Office of Disclosure agree to reporting requirements so that this can be consolidated into one statistical report.
Compliance costs are on the increase constantly.
The Bill was released on 31 March and is open for public comment till 30 April 2017.