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

2. 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

3. 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)

4. 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Subsequently, the Financial Services Board Act (1990) has been repealed and replaced by the Financial Sector Regulation Act (2017)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when the exclusion in the Bill is updated to refer to the in-force Financial Sector Regulation Act, rather than the repealed FSB Act

5. 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 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

6. View of the Select Committee of Finance

7. 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

8. 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.

9. 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”

10. 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

11. Who is MORCSA