Tuesday, September 08, 2009

Poor People. Coming to a Suburb Near You.

I saw this on the news last night and almost fell off the sofa. Not content with witnessing the largest housing crisis in history over in the United States, ABSA (my bank) is now making moves to let people in South Africa who can't afford them buy houses.

Have you tried getting an overdraft from ABSA? It took me six months to get a savings account. Every month they hassle me, because I'm less than one month behind on my bond, even though I own more than two-thirds of my house. But now they're going to give free money to people who can't afford to pay it back.


Mortgages of 110 percent are now available to low income earners, Absa said on Monday as it adjusted its lending criteria.

"Absa has become the first bank to provide relief to low income earners by offering 110 percent bonds with a monthly income up of to R11 000," the bank said in a statement.

"The turn in the economic cycle is becoming evident and as such we need to review our customer offerings.

"Although the South African economy still finds itself in recession after contracting for three consecutive quarters up to mid-2009, it is important to note that to date, the interest rates have been reduced by 500 basis points since December 2008 and are projected to drop by a further 50 bps later in the year," said Luthando Vutula, managing executive of Absa Home Loans.

He said this meant consumers were experiencing relief and with lower inflation and household payments there should be a notable reduction in loans in arrears.

"In light of this, and a slight improvement in property market, our loan to value caps will be aligned with the prevailing market conditions."

He said Absa would continue to weigh up the consequences of its decisions and the impact these could possibly have on its customers.

The bank added that it was providing up to 95 percent mortgages to Absa customers who need a bond of up to R1.5-million if they used Absa internal channels.

A mortgage of 90 percent was offered if they used external channels such as mortgage originators.

Houses from R1.5-million to R2.7-million would still require a 10 percent deposit and houses more than R2.7-million a 15 percent deposit," Vutula said.

Vutula said it was important to note that the normal lending criteria would still be taken into account.

"We encourage all of our customers to remain astute and discuss their home loan needs with us.

"It is only through meaningful interviews and accurate affordability analysis that we will be able to establish a sound needs analysis and offer the best solution," he said.

Residential Repossessed Assets and Absa distressed properties would also be available for customers to consider.

"Absa customers will get 100 percent on these home loans in order to make it possible for more of our customers to own their own homes," he said.

At the beginning of the year Absa reviewed and revised all of its agreements with mortgage originators, Vutula noted.

"These agreements remain unchanged," he said.

Despite lower interest rates, the economy was expected to remain under a lot of pressure until the end of the year, which would continue to impact employment, household income and the property market, he said.

In view of these developments Vutula encouraged consumers to keep expenses under control and look to buy properties that were affordable, based on their financial position.

"When there is extra cash available it's easy for people to be tempted to splurge, however, let's encourage our customers to remain prudent and save a few rands for that much talked about "rainy day".

He added that Absa continued to encourage home owners to deposit surplus cash into their mortgages.

Earlier this month Standard Bank said it had recently increased its risk acceptance rate in its home loan, and credit card divisions.

12 Opinion(s):

Doberman said...

Gee, Maria Ramos (Absa CEO) married to Trevor Manuel (ANC head honcho), hmm... If you're a shareholder of Absa, get out now.

Anonymous said...

I'm no financial brain, so please correct me if I have the wrong end of the stick - but doesn't this sound just like the cause of the US markets collapse due to the sub-prime loan sector - albeit a microscopic version of same ???

Vanilla Ice said...

No, but it's different. These are sub-Saharan Ubuntu-ing low income earners. They won't default, it's not in their culture. Besides the Afrikaner is moving into the poverty space; the future looks bright.

Anonymous said...

I say in 10 years there is a banking crisis in SA!

Dachshund said...

I'm sure Absa will come up with a bright plan to offer inflated BEE shares to historically disadvantaged individuals. Not only will those shareholders not be paid dividends - something a lot don't grasp when they buy discounted but still outrageously pricey BEE offers - but their shares will soon plummet in value.

Absa and Sanlam are the most exploitative slimeballs when it comes to blacks.

Censorbugbear said...

That reminds me very much of the 'tainted housing bonds' which the USA is now straddling its banks up with - 'tainted' referring to the fact that millions of young families were given house-loans when the banks knew darn well that they couldn't afford these houses. The results can be seen all over the USA, with entire neighbourhoods standing empty while all these duped people live in shanty towns and tent cities -- and still have to pay off their bonds. That was the very cause of the entire economic collapse which followed. And now ABSA wants to do this in South Africa so their executives can rake in fake 'positive results' and get higher bonuses ?


About 8 years ago my son wanted to buy a industrial building. Good substance, excellent value. Price was 1.6 mil and he had the 35 % deposit required. He went shopping for a bond .
Nedbank , the bank his business banks with and was aware that he had enough cash to buy it outright: gave a 6 month run around , no results.
Standard Bank : 4 month waste of time.
ABSA : stuffed him around for about 7 month , but at least came up with a bond of 1 mil. Took so long because the value of the building was in question. Immidiatly after he purchased it they wrote him a letter demanding that the building must be insured for 13 Mil. as this is the amount they consider replacement value. This was barely 3 month after they uhd and ahd to come up with one lousy mil!
On this example we can see why sane people avoid to deal with banks like the plague.
Hardly a issue of Noseweek goes by that does not feature some or other bank fraud or sharp practice.

Anonymous said...

Doberman said:
"Gee, Maria Ramos (Absa CEO) married to Trevor Manuel (ANC head honcho), hmm... "

Why so surprised Doberman? I've been telling you guys for years now about how it works. Trevor is the point man for the Western Bank Houses, they make sure their servants are all in key places so that they would never sill the beans!

Anonymous said...

"They" need greater centralisation of wealth in SA and this is their way of doing it. It worked to bring down the smaller banks of the West, and to enslave millions of more citizens of the West, leaving the Central Private Banks owning everything. Now they need to do it in SA!

By "they", I'm sure you all know who I mean!

Pensioner said...
This comment has been removed by the author.
Pensioner said...

I think anyone who owns shares in ABSA is already an idiot, but before he becomes a bankrupt idiot he better sell his shares quikly.

Online Home Loans said...

Has it been to the Senate yet? I hope it never sees the light of day.
He is out to scare people, plain and simple.