In a proposal that is set to ripple far beyond the boardrooms of the SA banking industry, the government plans to introduce changes to its housing finance laws to compel financial institutions to disclose critical information about their lending practices.
The proposed amendments to the Home Loan and Mortgage Disclosure Act aims to lift the veil on lending practices by requiring banks and other lenders to reveal data on home loans granted and declined. The additional information, which would be submitted to the office of disclosure, which is housed in the human settlements department, includes the number of home loans approved, as well as details on home loan applications that were denied, including the reasons for the rejections.
The proposed amendments would grant the office of disclosure the authority to investigate home loan consumer complaints related to home loans. A failure to act on these complaints would result in a minimum penalty of R100,000 for noncompliance.
Should the proposed legislative amendments pass, it would radically change SA’s home loan market, which is said to be worth R1.3-trillion and is dominated by the traditional banks: Standard Bank, Absa, FNB and Nedbank.
Standard Bank said it welcomed initiatives from the government that provided clarity on the future of the housing market, adding “the bank is in the process of understanding the data requirements to ensure protection of client information. The bank is in the process of studying the data”.
Absa referred questions to the Banking Association SA, which deals with the office of disclosure and the department of human settlements.
Human settlements minister Mmamoloko Kubayi said that while disclosure was voluntary now, the review of the white paper and the legislation aims to make it compulsory.
“We know that the banks don’t think it’s necessary but we do believe that we have a cause in forcing them to disclose when they have declined an application and the reasons why they have declined,” Kubayi said during a press conference on Monday.
If enacted, the amendments would pull back the curtain on lending practices, revealing patterns that have eluded public scrutiny and potentially improve the quality of debate about access to home loans. Banks and other financial institutions often come under attack from politicians and social media users, accusing them of bias against black, coloured and Indian applicants.
Still, historical barriers — such as the exclusion of black, coloured and Indian communities from wealth accumulation under apartheid — have lasting effects on creditworthiness compared with whites, who had an easier ride in building wealth and assets.
Kubayi said that her department was inundated by complaints from potential homeowners whose applications had been declined due to racial profiling.
“We want to deal with such even if they are myths and allegations. Once we compel everyone to disclose, we believe that the process [will] be transparent,” she said.
Data from the office of disclosure shows that in 2018-22 almost 6-million mortgage and home loan applications were received and processed by banks. Of this number, 2-million were from previously advantaged persons with just more than 1-million approvals. Applications from historically disadvantaged persons during this period amounted to 4-million with just more than 2.4-million approvals.
“The rejection rate for home loan applications has also remained high, averaging about 68% in recent quarters, further highlighting the challenges faced by the gap market in accessing finance... Financial institutions have cited several reasons including bad credit records and lack of affordability,” the department said.
“The number of [historically disadvantaged persons] applications is twice as high as that of their white counterparts. However, the approval rate of 53% for [previously advantaged persons] compared with 49% approvals for [historically disadvantaged persons] means the approval trend is still skewed in favour of the [previously advantaged persons].”
The proposal of imposing a R100,000 penalty for noncompliance is not set in stone as the department still has to consult with financial institutions.
“We’ve got to do something that makes them feel the impact. That’s why we are acknowledging that R100,000 is just not making [any difference] in terms of noncompliance,” Kubayi said.
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