August 2008 saw perhaps for the first time, the banking ombudsman truly acting in the interests of the consumer and gave FNB (and all it’s cronies in the banking monopoly), a rude awakening to basic rights.
What had happened, was that First National Bank(FNB) was going to re-assess home loans that the bank had already approved a year or more ago. The home loans that would have reconsidered included about 2000 approved mortgages that had, for various reasons, after a period of a year or more, not yet been registered against the title deeds of the relevant properties.
The bank planned to reassess the loan applicants’ credit based on the current credit assessment standards and their current debt load and general financial position.
A FNB spokesperson on Morning Live (SABC2) said that the bank came to this decision because the recent interest rate increases might make it very difficult for those home purchasers to honour the monthly mortgage bond repayments they will have to make.
The questions is - what’s new FNB? Surely all their mortgage clients needed to fork out more because of the high interest rates? Typically, it was made to sound as if First National was actually doing these home loan grantees a huge favour in withdrawing their mortgage bond approvals. But in reality the bank was obviously trying to limit its own exposure in the current low value growth (read falling value), high interest rate real estate market. The bank was in effect pre-pre-emptively repossessing these people’s homes, without the nasty costs involved in a proper foreclosure.
The banking ombudsman’s response to this was commendable and hopefully a sign of things to come in terms of letting SA bankers know that they indeed cannot do as they please. His response was quite strongly worded. He gave his assurance to the FNB representative that he would (not might or probably would; he WOULD) order FNB to pay for any damages those home purchasers or any other party might experience as a result of the banks re-assessment of mortgage bond approvals.
He was of the opinion that the question that should be asked is whether FNB SHOULD do this, not if they CAN do it. And I have to agree. Just from a public relations perspective, the damage done to FNB’s reputation, credibility and trust worthiness because of their decision to go back on their word is HUGE. And this is effectively what they tried to do – go back on their word.
And if you consider all the financial losses that might arise from such a home loan approval re-assessment by FNB, one cannot help but wonder how the bank figured that it would be worth their while. In my opinion their exposure would have been bigger, not smaller, if they went back on their word, destroyed their credibility as having any hint of honour, and re-assessed already approved loans.
A re-assessment on different standards could very well have meant that these approved home loans would then be refused, placing a whole lot of people (far more than the 2000 home loan applicants) in a perilous financial position.
Obviously these home purchasers would need to suddenly look for alternative accommodation, if they took occupation based on the bank’s approval of their home loan application. And knowing what buyers are like, I imagine that there would be a lot of them that would have gone and spent a pretty bundle on home repairs, alterations and/or home improvements before or shortly after moving into their new homes. They would very likely forfeit all of the money they spent.
Additionally, a buyer whose loan got declined on re-assessment would lose the deposit he/she paid on the purchase of the house. I say this because the purchasers’ suspensive mortgage bond condition would have been fulfilled when the bank first approved the home loan. So, a binding contract to purchase came into being. If the buyers then could not complete the sale, because of the re-assessment of their loan application, they would be in breach of the contract of sale.
The sellers would of been well within their rights to take steps to remedy the breach of contract or collect compensation, for damages they may have suffered, from the purchasers. And the damages they could suffer would include the cancellations of home purchases they may have made on the binding contracts of sale established by the mortgage bond approvals from FNB. Oh, and don’t forget that sellers who “sold” their properties to these unfortunate FNB home loan applicants would be looking for new roofs over their heads too.
Next in line at the ombudsman’s office door would probably be the other banks. Other banks may have granted mortgages based on the guarantee implied in a home loan approval. If their mortgagees cannot honour their mortgage terms because of FNB’s decision to go back on their word, they could of very well claimed damages as well.
And let’s not forget the poor real estate agents. Times were tough in real estate land. And commissions become due as soon as a real estate agent causes a binding contract of sale to exist. So, real estate agents would of been banging on the ombudsman’s door too. Really, FNB. Had you never heard that coming between an agent and his/her commission can be bad for your personal safety?
Now take into account that many real estate agents have taken to the bad habit of dipping into future commissions. A number of lenders bombard real estate agents with promotional offerings of their loan instruments that allow real estate agents to get an advance on commissions that have not become payable yet. So, if FNB cancelled mortgage approvals, and in effect cancelled the agents’ commissions, some bridging finance folks would lose much more than the value of those commissions.
I almost forgot the poor mortgage bond originators. They also work on commission. Would FNB have paid them their commissions too?
I think this plan to re-assess approved home loans ranked as one of the most ill conceived ideas I’d ever heard coming from a bank………. But serves only to confirm that for too long, they have done as they please… and now they do not even know how to think something through anymore or consider implications.
But the Ombudsman has got us hoping…..