Mortgage Origination Council of South Africa MORCSA Origination

Mortgage Origination Council of South Africa (MORCSA) Origination industry & the Property Practitioners Bill

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 : Øby advising and assisting consumers to submit home loan application to more than one bank Øthereby 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 • Mortgage origination is regulated under s 3(1)(g) of the Financial Sector Regulation Act as a “financial service”: Ø “financial service” means ‘a service related to the provision of credit’ Ø “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 • 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: Ø The legislators clear intent was to avoid dual regulation Ø 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Service Board Act – hence the need for regulation • Subsequently, the Financial Services Board Act (1990) has been repealed and replaced by the Financial Sector Regulation Act (2017) • The result is that origination is now regulated by the Financial Sector Conduct Authority (FSCA)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when the exclusion in the Bill is updated to refer to the in-force Financial Sector Regulation Act, rather than the repealed FSB Act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 FSR 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 a financial product. The property is simply the security for the loan • Bond brokers DO NOT Ø Give property related advice or offer property for sale of leasing Ø Receive property or sole mandates or charge fees / commissions to home buyers Ø Receive funds from home buyers or hold or operate trust accounts • Bond brokers DO Ø Offer a financial product regulated under the National Credit Ø Are included under section 163 of National Credit Act in regard to disclosures Ø Are now regulated by the Financial Sector Conduct Authority

View of the Select Committee of Finance

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: Ø A definition of “financial transactions” as those are clearly different to “property transactions” Ø A second certification that does not require trust accounts Ø Different training requirements, i. e. financial rather than property Ø Different transitional arrangements, as there is no existing regulation under the Estate Agents Affairs Board Ø 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 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 • Originators: Ø Play a valuable financial access role for consumers Ø 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”

Morcsa’s 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