Home Loan & Mortgage Disclosure Bill: briefing

Meeting report

HOUSING PORTFOLIO COMMITTEE
27 September 2000
HOME LOAN AND MORTGAGE DISCLOSURE BILL: BRIEFING

Relevant Documents:
Home Loan and Mortgage Disclosure Bill [B 53-2000]

SUMMARY
Discussion focused on the necessity of passing the Community Reinvestment Bill, which is meant to follow and complement the Home Loan and Mortgage Disclosure Bill. The DG also firmly refuted assertions that Servcon had been a failure. Alternatively, she suggested, if it was indeed a failure, it was not only the fault of the government but also of the Banking Council who shared the responsibility 50/50.

The DG also discussed "red-lining" which refers to the bank drawing a redline around an area where the risk is seen as too high and prohibiting lending in that area. The DG noted emphatically here that risk is defined by the ability to repay only.

The Chair read the Bill's "Motion of Desirability" which was agreed to by all Members, with the exception of Mr Lee of the DP, who abstained informally, pending the DP caucus the following day.

MINUTES
The Chairperson, Ms Hangana, said they could have informal discussions as formal deliberations would begin the following week. She said that the Bill states it is a section 75 Bill under the Constitution but this had not yet been confirmed. Thus it was not clear if NCOP approval would be needed. On the arrival of the Director General of the Department of Housing, Ms MZ Nxumalo-Nhlapo, and Mr Thatcher, the Chair gave a brief review of the presentations from the Banking Council and COSATU that had taken place the day before.

The Chair noted that COSATU had called the Bill a "toothless bulldog" without the Community Reinvestment Bill and asked the Director general if this Committee should put pressure on the Department for a speedy draft of a Community Reinvestment Bill.

The Director General answered that extensive consultation had preceded the Home Loan and Mortgage Disclosure Bill. The Department had started with three pieces of legislation that would work together: the Fair Lending Practices Bill, the Home Loan and Mortgage Disclosure Bill and the Community Reinvestment Bill. Originally, the Fair Lending Practices Bill was called "toothless". The process was now a two-stage one with the Home Loan and Mortgage Disclosure Bill and the Community Reinvestment Bill. The Preamble of the Home Loan and Mortgage Disclosure Bill, she said, covered what had been in the Fair Lending Practices Bill and takes its cue from the Constitution and other legislation that seeks to promote equality and prevent unfair discrimination.

On COSATU's accusation of the Bill being "toothless", the DG asserted that they had not communicated clearly that the Home Loan and Mortgage Disclosure Bill was only "Part One" and was to be followed by the Community Reinvestment Bill. She asked the Committee not to exert pressure since the Community Reinvestment Bill is "on the way".

Mr Thatcher pointed out that, having read COSATU's submission, it appeared that the submission was based on an earlier draft of the Bill that was published for comment in April and not the current Bill. Therefore, some of its concerns have already been addressed in the current Bill.

Mr Lee (DP) asked that, since the DG had raised the issue of the Bill's Preamble, shouldn't the Preamble make it clear that we do not support "unsound" lending practices?

The DG responded that this was not an unreasonable request, and one that can be accommodated. The Preamble can say this up front once the legal implications of "unsound" had been clarified.

The Chair asked that since Servcon was seen as a failure, the Banking Council complained the government was sending "mixed messages". For example, the Banks say they cannot raise the factors of race and gender but the Bill says these are the issues. [Servcon, a joint venture between the Banking Council and the Housing Department, acts as an agent to offer a rehabilitation package to the occupants of properties repossessed by the banks and their non-performing loans].

Mr Schneemann (ANC) said the banks said they do not discriminate, that applications are put on "scorecards" so they do not know who the applicants are. At the same time, banks will only lend in locations that have "turned around", that is, areas where home ownership is seen as a sound investment.

The DG responded that Servcon and the Mortgage Indemnity Fund (MIF) were created to facilitate lending in low income areas. MIF has been successful and many areas have bee "de-redlined". MIF was intended to last three years and it ended it June 1998. The Home Loan and Mortgage Disclosure Bill was meant to be a post-MIF intervention. The Disclosure legislation was meant to identify red-lined areas.

Servcon had a different mandate, to normalise an agreed portfolio of properties. The DG was adamant that Servcon had not failed! She characterised Servcon as a extensive program of normalising loans and said the government had established a subsidiary of Servcon to facilitate this normalisation.

The DG said another question is what happens to vacant properties after the government hands them back to the bank. In view of this, she asked, how can the Banking Council hold the view that Servcon has failed? It was a 50/50 arrangement so, if Servcon has indeed failed, the Banking Council is half responsible.

She said the primary purpose of the Home Loan and Mortgage Disclosure Bill is to facilitate the movement of credit into low-income groups. 96% of the houses built for people with low incomes, she said, are built by government and only 4% on credit. This trend would continue, she said, without government intervention.

"Red-lining", the DG continued, is the Banking Council's position, and refers to when the bank draws a redline around an area and prohibits lending in that area. These are areas where the risk is seen to be too high. The DG noted emphatically here that risk by definition is defined by the ability to repay only. She added that certain issues may contribute to a negative image of an area, but asked how that would affect an specific individual's ability to make a payment. She said there was an indirect relationship.

Mr Lee said if not all institutions involved with home loans are registered, they should also be covered by the Bill.

The DG said there had been a meeting with all the stakeholders where principle issues had been discussed, such as re-possessed properties and the issue of registered financial institutions. She said the government had conceded and accommodated the needs of the banking sector.

The DG denied that government had been sending mixed messages. She said it is clear that community initiatives are needed. She said the Community Reinvestment initiative was very clear within government.

Ms Buthelezi (ANC) commented that COSATU had said loans of less than R10 000 should also be included in this Bill.

The Chair asked the DG and Mr Thatcher to comment on COSATU's proposed legal amendments.

Ms Phantsi (ANC) referred to "Regulations" at clause 12 and said the Banking Council had said it also wanted to be included there. She said this looked to her like trying to be both "a referee and a player".

Mr Lee commented that Parliament should be included in clause 12.

The DG responded that loans of less than R10 000 are not excluded from the Bill. Nowhere is a minimum defined, she said. As to the "Regulations" at clause 12, she commented that stakeholders were part of the drafting process, so why are they now getting "cold feet"?

Mr Thatcher repeated his earlier observation that COSATU's comments appeared to be directed to an earlier version of the Bill. He gave specific examples of how COSATU's requests are incoherent in terms of the present Bill, such as the availability of information request.

The Chair said it was time to begin the formal processing of the Bill. She read the Bill's "Motion of Desirability" which was agreed to by all Members, with the exception of Mr Lee of the DP, who abstained informally, pending the DP caucus the following day.