Banks treatment of clients an abuse of power

When the history of the SA residential real estate industry comes to be written, the period through which it has just passed could, says Bill Rawson, chairman of Rawson Properties, become known as the era in which the banks treated the general public and bond originators poorly.

“Huge damage to the residential property sector has been caused by the banks’ ultra-strict application of the National Credit Act,” said Rawson, “but in view of their previous big losses in the housing sector that has become partially accepted - subject to the proviso that the Act could be more leniently and flexibly interpreted.

“However, no one accepts or condones the banks’ treatment of bond originators.”

Certain banks, said Rawson, had “declared war” on bond originators and refused point blank to accept a bond application from them.  The banks also punished clients by applying a far stricter credit scoring model against those who applied for home loans via independent mortgage originators than those who came directly to them.  This resulted in many not being able to secure home loan finance.  

“Double standards like this,” he said, “are difficult for the industry and the consumer to understand.  It could be said that this strategy was fuelling the recession and helping to create unemployment.”

The banks’ conduct was, he said, an abuse of power and their almost monopolistic control of bond finance. 

One of the banks’ arguments given for this practice, said Rawson, was that it would enable them to reduce their risk but, he said, there is absolutely no evidence that the credit and qualification testing done by bond originators has been any less effective than that done by the banks – indeed, with their years of experience, many bond originators could be better qualified to assess an applicant than newly appointed staff working to a rigid scorecard system. 

The banks then made life even more difficult for those bond originators with whom they did do deals by cutting their commissions by 50% – which in many cases forced them to go out of business – their earnings were simply too low to continue this valuable service to the industry.

There is, however, hope for the future.

“Recent good news,” said Rawson, “is that the bond issuers seem to have eased up on their credit scoring and are now granting loans more generously than for some time.  This is extremely positive as it could bring a lot of life into the property market in 2012.