Absa has launched a new strategy to significantly increase the percentage of home loans it obtains through its internal operations, posing a new threat to the mortgage origination industry.

All the major banks in 2009 renegotiated the agreements they had with mortgage originators with the specific aim of slashing the commission paid to originators. The viability and sustainability of the mortgage origination industry has also been knocked by the lower volume of home sales.

This environment led to listed Finbond exiting the mortgage origination market last year and repositioning itself in the microfinance market.

Saul Geffen, the chief executive of ooba, one of the country’s largest mortgage originators, declined to comment on Absa’s new strategy and its potential impact on the mortgage origination industry.

Reserve Bank data show that Absa was the home loan market leader with 30.57 percent of mortgage advances at the end of January, followed by Standard Bank (30.7 percent), FirstRand (18.48 percent) and Nedbank (16.83 percent).

Saks Ntombela, the head of product at Absa Retail Bank, said on Friday Absa Home Loans had decided to enhance its multi-channel strategy by expanding its direct sales force and inviting estate agents to sign non-exclusive contracts directly with Absa.

In terms of these contracts, agents would be paid an agreed commission based on volumes and granted access to Absa’s distressed property portfolio. A recognition and an incentive scheme would also be made available to estate agency staff.

Ntombela said Absa had been signing up estate agents since the end of last year, but declined to say how many had already signed on. He said Absa’s direct sales force accounted for 60 percent of its home loans, mortgage originators brought in 35 percent with the balance from online applications, developers and attorneys.

Ntombela said Absa was seeking to increase the proportion of its new home loans from direct sales to above 80 percent. To achieve this, it planned to double the size of its direct sales force of about 100 within the next four to five months. Its direct sales force liaises with estate agents and completes home loan applications with customers.

Ntombela confirmed commissions of up to 2.4 percent were paid to mortgage originators two years ago but had declined significantly since then, although he was not prepared to comment on current commissions paid.

But he said there would be continued pressure on the commission earned by mortgage originators, because of pressure on the cost of funding.

“With the resultant decline and squeeze on margins, we have to find a more cost effective and efficient way of doing business. We provide a wide range of (home loan) channels to consumers and they must choose which is the most appropriate for them.

“But as a full-service retail bank we are able to offer more than just a (competitive home loan) rate to customers.”

Ntombela said there was an opportunity from inception of the home loan to offer a holistic suite of services to customers.

“We have 11 million customers in Absa Retail Bank and the big focus is to cross-sell into that base and create a deeper relationship with our customers. It creates more revenue for us and the more we are able to sell the more it helps with customer retention,” he said. - Business Report