Guiding consumers since 2009

Banks would far rather help than repossess homes

By Staff Writer

From Business Report
April 14, 2008

By Ethel Hazelhurst

Last week's rate increase, which pushed benchmark mortgage rates to 15
percent, will increase the number of borrowers unable to meet their
monthly mortgage repayments - and banks are looking for ways to limit
the damage.

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Immediately after the latest rate hike, First National Bank (FNB)
appealed to customers who are struggling to meet their debt obligations
to "come forward for help".

Monthly repayments are up by 32 percent in less than two years. The
monthly repayment on a R500 000 mortgage over 20 years has risen by
R1 592 to R6 584. At the same time, consumers are paying more on a range
of short-term debt as well as for food and fuel.

The latest rate hike puts the most pressure on those already behind in
their repayments. In a worst-case scenario, they face losing their homes
to settle their debt.

However, banks typically are eager to avoid this outcome. Jan Kleynhans,
the FNB home loans chief executive, said in a statement last week: "The
last thing we want is to repossess homes of struggling customers."

Kleynhans pointed out that the repossession process was costly and
burdensome. "We would rather sit down with a customer and work out
ways ... they can repay their debt."


Among the options for customers not already in arrears, he said, was to
pay only the interest portion of the home loan until their financial
circumstances improved. Alternatively, FNB would allow customers to
extend their payment period.

Other banks have taken a similar approach.

Gavin Opperman, Absa's home loans managing executive, said the bank
allowed a moratorium on payments, provided clients talked to the bank
about their problems. "The cost of sales in execution are prohibitive and
we would much rather help consumers get through the bottom of the cycle."

Opperman said each case was evaluated on its merit. Two important
considerations were the proportion of equity a client had in the home and
how attractive the home would prove on the property market. He said Absa
allowed clients to sell their own homes. "And we understand it takes longer
to sell."

Erik Larsen, spokesperson for Standard Bank, said the bank would consider
extending the term of the loan from 20 to 30 years. Alternatively, it would
accept as little as 70 percent of the monthly payment for up to a year.

Herschel Jawitz, the chief executive of Jawitz Properties, said that while
the low-income segment was the hardest hit, the problem was spreading and
the latest rate hike increased the "possibility of a period of national
house price deflation".

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