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Bond Origination

Bond Origination: Bringing Upside To The Consumer

Bond origination was not an evolution…it was a revolution.

By 1999, when the first bond originator opened their doors for business, consumers were more than ready for an alternative to the poor service they were receiving from the banks and the frustration that they experienced when trying to source mortgage financing. The banks were not about to resist either. Faced with a struggling economy and besieged by financial performances that were far from stellar, investors and shareholders were tightening the thumbscrews: demanding improved revenue streams and a reduction in fixed costs.

The consumer uptake was explosive. Driven by their demand for services, the number of new entrants to the bond origination market proliferated. By 2002, more than one hundred bond originators were operating in South Africa and accounted for 40% of the banks’ mortgage business. By 2006/2007, this figure had grown to a whopping 65% and industry projections are that the deteriorating economic situation of the day will see it leap to around 80% by the end of 2009.

Economics and market dynamics aside, the growth of bond origination is strongly underpinned by a compelling value proposition to the consumer. More than anything else, it was this that helped catapult bond origination from being the newcomer on the block to where it is today: a dominant force in the mortgage industry.

We take a brief look at the value proposition to consumers:

Consumers and bond originators have a shared goal: approval

Your bond originator is only rewarded financially, if your application is accepted by a bank and if you accept the quotation offered by the bank. As a result, the bond originator will not leave any stone unturned to ensure that your application is successful and that the bank’s quotation is the best you can possibly get.

Bond Originators know how to extract the best rates from the banks

It is nearly unheard of, of banks to extend the same discounts to consumers as they do to bond originators. Even if you are a ‘valued customer’ of your current bank, the bond originator will still be able to secure a cheaper rate than if you approached the bank on your own.

Also, if you decide to take on the onerous task of going it alone, don’t expect the banks to give you some of the benefit of the 2% in bond originator commissions they save. It simply does not happen. Also, don’t expect them to make any concessions around their fees or to throw in a couple of freebies, as bond originators are wont to do. They don’t do discounts and they don’t do free.

In other words, there is absolutely no financial reward for you if you leave bond origination out of the loop. On the contrary, it is more likely to increase your financial burden.

Working with a bond originator is much simpler than dealing with a bank

One bond originator, many banks. A single application form and a single set of supporting documents are all you need to apply to the many banks a bond originator represents. After submission, you don’t have to do anything. The bond originator takes care of expediting the application, and negotiating preferential rates. Then, when the quotations arrive, your bond originator will work through the acceptance terms and the numbers with you to ensure that you make the best choice possible.

Bond originators know what the banks are up to

Knowledge is power. Bond originators usually have a banking background. This means that they are well versed in the internal machinations of the mortgage departments at the banks and that they have a firm understanding of how the banks go about when determining applicants’ risk profiles. For consumers, this knowledge comes in handy. Before you go house shopping, you can approach a bond originator to help you assess whether you will be eligible for a home loan and, if you are, how much you can safely buy for. Then, once you sign the Offer to Purchase, they know how to best motivate your application with each of the banks.

Bond originator services are delivered free of charge to consumers

Unlike the services rendered by their international counterparts, South African bond originators do not charge their customers for their services. The bank you eventually decide to work with, will foot the bill. And, best of all, these costs are not passed down to you by the bank.

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