High level of impaired credit records - the number one challenge facing bond originators

The fact that many of South Africa’s bond originators have been able to increase their “hit rates” (i.e. to achieve a higher percentage of accepted bond applications) this year is remarkable considering the “staggering” rise in debt payment defaulting, says Mike van Alphen, National Manager of Rawson Finance, the Rawson Property Group’s bond origination division.

Referring to a statement recently disseminated by Nomsa Motshegare, CEO of the National Credit Regulator, van Alphen said that the quarter that ended in March 2013 showed an alarming increase in impaired credit records.

“There are now,” he said, “20,08 million credit-active consumers in South Africa, a figure which is 0,6% up on the previous quarter. However, the number of creditors in good standing in the last quarter decreased by 76,000 — to 10,5 million — while the number of consumers with impaired records rose by 189,000 to 9,53 million. This, as the National Credit Regulator has pointed out, represents 47,5% of all South Africa’s credit active consumers — a very unsatisfactory state of affairs.”

The very real danger now facing the SA housing sector, said van Alphen, is that many potential bond applicants with impaired credit records could easily get the impression that they will never qualify for a bond and will be forced to rent their homes in perpetuity — but this is not the case.

“If they will just get in touch with a good bond originator, many can be shown how to reinstate themselves as credit-worthy customers,” said van Alphen.

This, he said, is often possible if their credit arrears are only in the current debt category (roughly 37% of credit impaired debtors are listed here) or are one or two months in arrears (approximately 15% of the total) or even if they are three or more months in arrears (approximately 20%).

“In cases like these, making an arrangement, with the help of the originator, to pay off the debt in a stipulated period can and does result in the debtor once again being accepted as a prospective borrower/mortgage loan applicant.”

Where a consumer has had a court judgement against him on account of an unpaid debt or where the size and number of his debts has resulted in his being black listed by the Credit Bureau, it is far harder to reinstate him, said van Alphen, but even here avenues can be opened to achieving this.

Van Alphen commented that in dealing with peoples’ credit records that are now impaired, one has to realise that this has often come about as a result of high pressure salesmanship, which has inveigled the consumer into a hire purchase agreement.

“Offered the chance of, say, acquiring a car, a suite of furniture, a flat screen TV, or new kitchen equipment on seemingly reasonable monthly payments, the consumer can all too easily overlook the fact that a few months down the line he may be on a reduced income or even have no income at all — a possibility that the salesman will not have taken into account. Very few hire purchase customers plan to default — they end up doing so because they are too confident of future income. Since the implementation of the Consumer Protection Act, this should be happening less, but so far we have seen no difference.”

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