INDUSTRY COMMENT by Theuns Hanekom
We keep hearing about how the sub-prime crisis in the US housing market has caused great anxiety in the world economy. What is it and how will economies manage the crisis?
Remember 2001 in the USA - 9/11, huge corporate scandals (Worldcom and Enron)? Remember a fear in the US of recession? The US Federal Reserve cut interest rates to an all time low of 1% to stimulate their economy. Of course, lower interest rates made houses more affordable and house prices soared as demand for properties increased.
The prime rate of interest is the rate at which banks loan money to their low risk or best risk clients. With this demand for borrowing for housing purchases, US mortgage lenders saw the potential of granting high interest home loans to previously high-risk clients who might not have qualified for a mortgage loan under normal circumstances. So the birth of the sub-prime lending market. Sub-prime lending gave rise to a whole range of new mortgage products, which effectively did away with the usual strict credit criteria. “Liar loans” (allowed applicants to claim higher income) and “Ninja loans” (no income, no job or asset loans) were products offerings. Lenders argued that they could charge higher rates to compensate for the increased risk of their new clients and relied on a booming property market to protect them in the event of default and the need to repossess. Also important is that sub-prime lenders largely made use of securitization to raise funding.
By December 2004, however, US interest rates were increasing causing bond repayments to rise and the growth in property values to decline. The high-risk sub-prime market was the first to feel the pinch of higher interest rates and subsequently defaults on mortgage repayments started to soar. Sub-prime lenders struggled to sell repossessed properties at a high enough price to cover the outstanding debt. This resulted in huge losses in the sub-prime market. It was recorded during February 2007 that sub-prime mortgage defaulted at a rate of 12.5% as opposed to 1.5% of traditional prime mortgages.
As mentioned earlier, the decision to enter into the sub-prime market, was fuelled by investors and the highly lucrative securitization model. As the sub-prime market started to default, investors in mortgages started to panic and withdrew their investments in mortgages. This caused a liquidity squeeze, as many of the sub-prime lenders were forced to liquidate their sub-prime mortgages in order to pay their investors. This forced further losses in the sub-prime market. During April of 2007, New Century, the largest independent sub-prime lender filed for bankruptcy.
How does this affect the South African market? Fortunately our major financial institutions have not yet entered the sub-prime market. It is unlikely that South Africa will be directly exposed to a sub-prime crisis. This is due to disciplined banking practice and more recently introduction of the National Credit Act. However as members of the global economic community we cannot escape the effects of the crisis in the largest economy in the world.
However, as a result of the US sub-prime crises, certain recommendations are being investigated in order to prevent this from happening again in the future. One recommendation, which may be investigated by our local financial institutions, is separation between the origination of the credit (mortgage originator) and the ownership and management of the associated credit risk. There is a growing concern that the mortgage originator is not motivated or involved in limiting the risk associated with the mortgage loan.
With the rise in interest rates over the past 19 months and banks recording a sharp increase in repossessed properties, the banks may very well investigate ways of sharing that risk with the mortgage originators in the future, such as the introduction of trailer commission which is currently being used in the Australian mortgage origination market. This, however, reiterates our role as mortgage originators – we have an obligation towards the banks to ensure that we submit good quality applications in order to ensure the sustainability of our wonderful industry.
Thursday, February 21, 2008
Finding and keeping a life partner
Golden rules for finding your life partner by Dov Heller, M.A
When it comes to making the decision about choosing a life partner, no one wants to make a mistake. Yet, with a divorce rate of close to 50%, it appears that many are making serious mistakes in their approach to finding Mr. /Miss. Right! If you ask most couples who are engaged why they're getting married, they'll say: "We're in love". I believe this is the #1 mistake people make when they date.
Choosing a life partner should never be based on love. Though this may sound "not politically correct", there's a profound truth here. Love is not the basis for getting married. Rather, love is the result of a good marriage. When the other ingredients are right, then the love will come. Let me say it again: "You can't build a lifetime relationship on love alone". You need a lot more!!!
Here are five questions you must ask yourself if you're serious about finding and keeping a life partner.
QUESTION 1: Do we share a common life purpose? Why is this so important? Let me put it this way: If you're married for 20 or 30 years, that's a long time to live with someone. What do you plan to do with each other all that time? Travel, eat and jog together? You need to share something deeper and more meaningful. You need a common life purpose. Two things can happen in a marriage: (1) You can grow together, or (2) You can grow apart. 50% of the people out there are growing apart. To make a marriage work, you need to know what you want out of life! Bottom line; and marry someone who wants the same thing.
QUESTION 2: Do I feel safe expressing my feelings and thoughts with this person? This question goes to the core of the quality of your relationship.Feeling safe means you can communicate openly with this person. The basis of having good communication is trust - i.e. trust that I won't get "punished"; or hurt for expressing my honest thoughts and feelings. A colleague of mine defines an abusive person as someone with whom you feel afraid to express your thoughts and feelings. Be honest with yourself on this one. Make sure you feel emotionally safe with the person you plan to marry.
QUESTION 3: Is he/she a mensch? A mensch is someone who is a refined and sensitive person. How can you test? Here are some suggestions. Do they work on personal growth on a regular basis? Are they serious about improving themselves? A teacher of mine defines a good person as "someone who is always striving to be good and do the right ".So ask your significant other what do they do with their time? Is this person materialistic? Usually a materialistic person is not someone whose top priority is character refinement. There are essentially two types of people in the world: (1) People who are dedicated to personal growth, and (2) People who are dedicated to seeking comfort. Someone whose goal in life is to be comfortable will put personal comfort ahead of doing the right thing. You need to know that before walking down the aisle.
QUESTION 4: How does he/she treat other people? The one most important thing that makes any relationship work is the ability to give. By giving, we mean the ability to give another person pleasure. Ask: Is this someone who enjoys giving pleasure to others or are they wrapped up in themselves and self-absorbed? To measure this, think about the following: How do they treat people whom they do not have to be nice to, such as waiters, bus boys, taxi drivers, etc. How do they treat their parents and siblings? Do they have gratitude and appreciation? If they don't have gratitude for the people who have given them everything; can you do nearly as much for them? You can be sure that someone who treats others poorly will eventually treat you poorly as well.
QUESTION 5: Is there anything I'm hoping to change about this person after we're married? Too many people make the mistake of marrying someone with the intention of trying to "improve" them after they're married. As a colleague of mine puts it, "You can probably expect someone to change after marriage for the worse". If you cannot fully accept this person the way they are now, then you are not ready to marry them. In conclusion, dating doesn't have to be difficult and treacherous. The key is to try leading a little more with your head and less with your heart. It pays to be as objective as possible when you are dating; so be sure to ask questions that will help you get to the key issues. Falling in love is a great feeling, but when you wake up with a ring on your finger, you don't want to find yourself in trouble because you didn't do your homework. Another perspective.... There are some people in your life that need to be loved from a distance.... It's amazing what you can accomplish when you let go of or at least minimize your time with draining, negative, incompatible, not-going anywhere relationships. Observe the relationships around you. Pay attention....Which ones lift and which ones lean? Which ones encourage and which ones discourage? Which ones are on a path of growth uphill and which ones are going downhill? When you leave certain people do you feel better or feel worse? Which ones always have drama or don't really understand, know, or appreciate you? The more you seek quality, respect, growth, peace of mind, love and truth around you...the easier it will become for you to decide who gets to sit in the front row and who should be moved to the balcony of your life.
An African proverb states, "Before you get married, keep both eyes open, and after you marry, close one eye". Before you get involved and make a commitment to someone, don't let lust, pity, desperation, immaturity, ignorance, pressure from others or a low self-esteem make you blind to warning signs. Keep your eyes open, and don't fool yourself that you can change someone or that what you see as faults aren't really that important. Do you bring out the best in each other? Do you compliment and compromise with each other, or do you compete, compare and control? What do you bring to the relationship? Do you bring past relationships, past hurt, past mistrust, past pain? You can't take someone to the altar to alter them. You can't make someone love you or make someone stay. If you develop self-esteem, spiritual discernment, and "a life"; you won't find yourself making someone else responsible for your happiness or responsible for your pain. Seeking status, sex, and security are the wrong reasons to be in a relationship.
WHAT KEEPS A RELATIONSHIP STRONG ARE:
1. TRUST
2. COMMUNICATION
3. INTIMACY
4. A SENSE OF HUMOR
5. SHARING TASKS
6. SOME GETAWAY TIME WITHOUT BUSINESS OR CHILDREN
7. DAILY EXCHANGES (meal, shared activity, hug, call, touch, notes)
8. SHARING COMMON GOALS AND INTERESTS
9. GIVING EACH OTHER SPACE TO GROW WITHOUT FEELING INSECURE
10. GIVING EACH OTHER A SENSE OF BELONGING AND ASSURANCES OF COMMITMENT
If these qualities are missing, the relationship will erode as resentment withdrawal, abuse, neglect, and dishonesty; and pain will replace it.
Happiness keeps You Sweet,
Trials keep You Strong, Sorrows keep You Human,
Failures keep You Humble,
Success keeps You Glowing, but..........
Only faith keeps You Going!
When it comes to making the decision about choosing a life partner, no one wants to make a mistake. Yet, with a divorce rate of close to 50%, it appears that many are making serious mistakes in their approach to finding Mr. /Miss. Right! If you ask most couples who are engaged why they're getting married, they'll say: "We're in love". I believe this is the #1 mistake people make when they date.
Choosing a life partner should never be based on love. Though this may sound "not politically correct", there's a profound truth here. Love is not the basis for getting married. Rather, love is the result of a good marriage. When the other ingredients are right, then the love will come. Let me say it again: "You can't build a lifetime relationship on love alone". You need a lot more!!!
Here are five questions you must ask yourself if you're serious about finding and keeping a life partner.
QUESTION 1: Do we share a common life purpose? Why is this so important? Let me put it this way: If you're married for 20 or 30 years, that's a long time to live with someone. What do you plan to do with each other all that time? Travel, eat and jog together? You need to share something deeper and more meaningful. You need a common life purpose. Two things can happen in a marriage: (1) You can grow together, or (2) You can grow apart. 50% of the people out there are growing apart. To make a marriage work, you need to know what you want out of life! Bottom line; and marry someone who wants the same thing.
QUESTION 2: Do I feel safe expressing my feelings and thoughts with this person? This question goes to the core of the quality of your relationship.Feeling safe means you can communicate openly with this person. The basis of having good communication is trust - i.e. trust that I won't get "punished"; or hurt for expressing my honest thoughts and feelings. A colleague of mine defines an abusive person as someone with whom you feel afraid to express your thoughts and feelings. Be honest with yourself on this one. Make sure you feel emotionally safe with the person you plan to marry.
QUESTION 3: Is he/she a mensch? A mensch is someone who is a refined and sensitive person. How can you test? Here are some suggestions. Do they work on personal growth on a regular basis? Are they serious about improving themselves? A teacher of mine defines a good person as "someone who is always striving to be good and do the right ".So ask your significant other what do they do with their time? Is this person materialistic? Usually a materialistic person is not someone whose top priority is character refinement. There are essentially two types of people in the world: (1) People who are dedicated to personal growth, and (2) People who are dedicated to seeking comfort. Someone whose goal in life is to be comfortable will put personal comfort ahead of doing the right thing. You need to know that before walking down the aisle.
QUESTION 4: How does he/she treat other people? The one most important thing that makes any relationship work is the ability to give. By giving, we mean the ability to give another person pleasure. Ask: Is this someone who enjoys giving pleasure to others or are they wrapped up in themselves and self-absorbed? To measure this, think about the following: How do they treat people whom they do not have to be nice to, such as waiters, bus boys, taxi drivers, etc. How do they treat their parents and siblings? Do they have gratitude and appreciation? If they don't have gratitude for the people who have given them everything; can you do nearly as much for them? You can be sure that someone who treats others poorly will eventually treat you poorly as well.
QUESTION 5: Is there anything I'm hoping to change about this person after we're married? Too many people make the mistake of marrying someone with the intention of trying to "improve" them after they're married. As a colleague of mine puts it, "You can probably expect someone to change after marriage for the worse". If you cannot fully accept this person the way they are now, then you are not ready to marry them. In conclusion, dating doesn't have to be difficult and treacherous. The key is to try leading a little more with your head and less with your heart. It pays to be as objective as possible when you are dating; so be sure to ask questions that will help you get to the key issues. Falling in love is a great feeling, but when you wake up with a ring on your finger, you don't want to find yourself in trouble because you didn't do your homework. Another perspective.... There are some people in your life that need to be loved from a distance.... It's amazing what you can accomplish when you let go of or at least minimize your time with draining, negative, incompatible, not-going anywhere relationships. Observe the relationships around you. Pay attention....Which ones lift and which ones lean? Which ones encourage and which ones discourage? Which ones are on a path of growth uphill and which ones are going downhill? When you leave certain people do you feel better or feel worse? Which ones always have drama or don't really understand, know, or appreciate you? The more you seek quality, respect, growth, peace of mind, love and truth around you...the easier it will become for you to decide who gets to sit in the front row and who should be moved to the balcony of your life.
An African proverb states, "Before you get married, keep both eyes open, and after you marry, close one eye". Before you get involved and make a commitment to someone, don't let lust, pity, desperation, immaturity, ignorance, pressure from others or a low self-esteem make you blind to warning signs. Keep your eyes open, and don't fool yourself that you can change someone or that what you see as faults aren't really that important. Do you bring out the best in each other? Do you compliment and compromise with each other, or do you compete, compare and control? What do you bring to the relationship? Do you bring past relationships, past hurt, past mistrust, past pain? You can't take someone to the altar to alter them. You can't make someone love you or make someone stay. If you develop self-esteem, spiritual discernment, and "a life"; you won't find yourself making someone else responsible for your happiness or responsible for your pain. Seeking status, sex, and security are the wrong reasons to be in a relationship.
WHAT KEEPS A RELATIONSHIP STRONG ARE:
1. TRUST
2. COMMUNICATION
3. INTIMACY
4. A SENSE OF HUMOR
5. SHARING TASKS
6. SOME GETAWAY TIME WITHOUT BUSINESS OR CHILDREN
7. DAILY EXCHANGES (meal, shared activity, hug, call, touch, notes)
8. SHARING COMMON GOALS AND INTERESTS
9. GIVING EACH OTHER SPACE TO GROW WITHOUT FEELING INSECURE
10. GIVING EACH OTHER A SENSE OF BELONGING AND ASSURANCES OF COMMITMENT
If these qualities are missing, the relationship will erode as resentment withdrawal, abuse, neglect, and dishonesty; and pain will replace it.
Happiness keeps You Sweet,
Trials keep You Strong, Sorrows keep You Human,
Failures keep You Humble,
Success keeps You Glowing, but..........
Only faith keeps You Going!
Friday, February 8, 2008
Home is where the loan is
By Desné Masie
Integer is a new player in the mortgage space dominated by the commercial banks and SA Home Loans.Its main feature is the way it combines transactional features with home loans.
CEO Simon Stockley says: "The product starts its life as a mortgage account. We are encouraging people with mortgages to switch to this product." If the bond is in your name, there are no registration fees and Integer's attorneys will negotiate a 50% discount on bond fees for you. There is an initiation fee of R2 950.
The Integer model enables a salary to be paid into a bond account. What does this mean and how does it work out?Savings can be significant over time. Most SA consumers are paying off a loan at the prime rate of 14,5%.
According to Integer, assuming a R500 000 bond payable over 20 years, and a monthly salary of R14 750, as much as R55 829 can be saved over 13 months.Homeowners can borrow up to 85% of the value of their homes. Integer has found people are borrowing about 70%. Like similar models, it can be seen as a line of revolving credit for your home.
Stockley is aware that the concept of a single banking account is not new. FNB offers the One Account, which allows consumers to consolidate their homes as a cheque account, overdraft, personal loan and home loan.
The difference, claims Stockley, is flexibility: "We have taken the general principles of a mortgage and tweaked them a bit. With the One Account, you have to put your whole salary into it. Here you can split your salary between your cheque accounts and Integer."
Some debts can come off Integer and others off a cheque account. This is because "people would rather have a small positive balance on their transactional accounts. It is quite scary to see a negative balance of R900 000 on your account."
One of Integer's features allows an additional credit loading of 1% of the value of a home onto a debit card, in addition to the maximum loan of 85%. This can be paid back at a lower rate than an overdraft, because payments would be made at the same rate as the Integer home loan.The concept has apparently worked in developed markets.
In SA it has been offered in the private banking space, but, says Stockley, "not really in the mass-banked sector. I suppose it is not offered for good reason. Banks make money from the inefficiencies of their products."
Is it a good time to launch yet another mortgage product, when the global housing market is becoming depressed?Absolute house prices have also come down in SA and made it a buyer's market.Says Stockley: "It's a good time for a new product. But we can't compete on product alone, so we will have to compete with our service and fees, especially on the rate we lend to customers.
Banks advertise the worst possible rate to consumers." Most people don't realise you can negotiate your lending rate down from prime.A lot of South Africans started to think about unlocking the equity in their homes during the property price hike by increasing the size of their mortgages.
How is an independent player like Integer funding this business? Unlike banks, Integer does not take deposits. Banks use retail deposits to fund their loans and mortgages.Stockley responds that "we are funded by securitisation in the capital market. This is a mechanism I pioneered at SA Home Loans. We are looking to securitise towards the end of this year, as we are still in the ramping-up stage and building up our loan portfolio."
Is this not a business risk, with the global market tightening as a result of the subprime meltdown? Stockley believes the SA capital market is still sound and interested in this product: "But there is still a risk that when we need to securitise, we might not be able to."He says Integer will have to look to alternative sources of funding should it not be in a position to securitise. "We could (potentially) access Investec's balance sheet on a short-term basis to ride out any disruptions to the capital markets," he says, and cites the example of Northern Rock. "If you look at the real casualties of the subprime, it is those specialist lenders without bank shareholders that have been worst hit."
Integer funds its loan portfolio through securitisation, but the venture capital for the loan portfolio has been provided by Investec and Purple Capital.Stockley says: "Since we launched in October, we have had applications in the sum of about R775m, but about 40% of the projected gross applications will be registered, which is about R300m."But this is a patient sort of business and definitely a long-term investment for Investec and Purple. It's going to take about three to five years for this business to become profitable."The actual mortgage switches can take anything from four to six months.
This means consumers also have to exercise patience before deriving benefit. For example, commercial banks will make clients wait for up to three months or pay three months' instalments, before they effect a switch.
Mark Barnes, CE of Purple Capital, is also chairman of Integer: "The reason we are also on the board is that our cost of capital is higher than other financial institutions, so we want to be involved. This is a good entrepreneurial venture with good professional skills. We expect a good return."
Financial Mail
Friday, February 08, 2008 10:16:00 AM
Integer is a new player in the mortgage space dominated by the commercial banks and SA Home Loans.Its main feature is the way it combines transactional features with home loans.
CEO Simon Stockley says: "The product starts its life as a mortgage account. We are encouraging people with mortgages to switch to this product." If the bond is in your name, there are no registration fees and Integer's attorneys will negotiate a 50% discount on bond fees for you. There is an initiation fee of R2 950.
The Integer model enables a salary to be paid into a bond account. What does this mean and how does it work out?Savings can be significant over time. Most SA consumers are paying off a loan at the prime rate of 14,5%.
According to Integer, assuming a R500 000 bond payable over 20 years, and a monthly salary of R14 750, as much as R55 829 can be saved over 13 months.Homeowners can borrow up to 85% of the value of their homes. Integer has found people are borrowing about 70%. Like similar models, it can be seen as a line of revolving credit for your home.
Stockley is aware that the concept of a single banking account is not new. FNB offers the One Account, which allows consumers to consolidate their homes as a cheque account, overdraft, personal loan and home loan.
The difference, claims Stockley, is flexibility: "We have taken the general principles of a mortgage and tweaked them a bit. With the One Account, you have to put your whole salary into it. Here you can split your salary between your cheque accounts and Integer."
Some debts can come off Integer and others off a cheque account. This is because "people would rather have a small positive balance on their transactional accounts. It is quite scary to see a negative balance of R900 000 on your account."
One of Integer's features allows an additional credit loading of 1% of the value of a home onto a debit card, in addition to the maximum loan of 85%. This can be paid back at a lower rate than an overdraft, because payments would be made at the same rate as the Integer home loan.The concept has apparently worked in developed markets.
In SA it has been offered in the private banking space, but, says Stockley, "not really in the mass-banked sector. I suppose it is not offered for good reason. Banks make money from the inefficiencies of their products."
Is it a good time to launch yet another mortgage product, when the global housing market is becoming depressed?Absolute house prices have also come down in SA and made it a buyer's market.Says Stockley: "It's a good time for a new product. But we can't compete on product alone, so we will have to compete with our service and fees, especially on the rate we lend to customers.
Banks advertise the worst possible rate to consumers." Most people don't realise you can negotiate your lending rate down from prime.A lot of South Africans started to think about unlocking the equity in their homes during the property price hike by increasing the size of their mortgages.
How is an independent player like Integer funding this business? Unlike banks, Integer does not take deposits. Banks use retail deposits to fund their loans and mortgages.Stockley responds that "we are funded by securitisation in the capital market. This is a mechanism I pioneered at SA Home Loans. We are looking to securitise towards the end of this year, as we are still in the ramping-up stage and building up our loan portfolio."
Is this not a business risk, with the global market tightening as a result of the subprime meltdown? Stockley believes the SA capital market is still sound and interested in this product: "But there is still a risk that when we need to securitise, we might not be able to."He says Integer will have to look to alternative sources of funding should it not be in a position to securitise. "We could (potentially) access Investec's balance sheet on a short-term basis to ride out any disruptions to the capital markets," he says, and cites the example of Northern Rock. "If you look at the real casualties of the subprime, it is those specialist lenders without bank shareholders that have been worst hit."
Integer funds its loan portfolio through securitisation, but the venture capital for the loan portfolio has been provided by Investec and Purple Capital.Stockley says: "Since we launched in October, we have had applications in the sum of about R775m, but about 40% of the projected gross applications will be registered, which is about R300m."But this is a patient sort of business and definitely a long-term investment for Investec and Purple. It's going to take about three to five years for this business to become profitable."The actual mortgage switches can take anything from four to six months.
This means consumers also have to exercise patience before deriving benefit. For example, commercial banks will make clients wait for up to three months or pay three months' instalments, before they effect a switch.
Mark Barnes, CE of Purple Capital, is also chairman of Integer: "The reason we are also on the board is that our cost of capital is higher than other financial institutions, so we want to be involved. This is a good entrepreneurial venture with good professional skills. We expect a good return."
Financial Mail
Friday, February 08, 2008 10:16:00 AM
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