Mortgage Default Insurance: briefing by Deputy Minister of Finance

Meeting report

Briefing by Deputy Minister of Finance
Mr Nhlanhla Musa Nene, Deputy Minister: Department of Finance, said that the Members had complained about the previous presentation on mortgage default insurance being too technical.  Mortgage insurance needed to do more to support South Africans, and had an important role to play in the ongoing transformation of our society, and the country's desire to bring a better life to all of our people.  The task of the Department was to set up a policy and engage with the National Treasury and Parliament as to how the insurance policy would work.   In South Africa, there were people who earned too much to qualify for a government subsidy, and there were people who did not earn too much to qualify for government subsidy.  However, mortgage insurance was there to assist people who were really in need of houses.  Mortgage insurance focused on narrowing the gap in the housing market.  Indeed, the Department had done some investigation around the housing situation in the country, and had found that many people did not really have access to finance that would enable them to buy their own houses.

The Department of Finance would make sure that funds were released to where they were supposed to go, and all funds would be monitored to ensure that the intended targets were met. There was a plan in place that would ensure that mortgage insurance worked.  The Department had decided to bring financial institutions, such as banks, on board.  These financial institutions would benefit from the mortgage insurance.  Most importantly, the Department wanted to have proper financial governance through financial institutions, mainly banks.

The mortgage default insurance would comply with the local financial regulations. The Department of Finance had reviewed the insurance policy in March 2013 to ensure that mortgage insurance was in line with the insurance policy. In order for mortgage insurance to be a success, the Department had engaged with the Banking Association of South Africa (BASA) and the Department of  Human Settlements. The Department of Finance would like to encourage the Committee to play its oversight role to ensure that mortgage default insurance achieved its intended goals.

In concluding, the Deputy Finance Minister said that he hoped he had not been too technical when briefly explaining mortgage default insurance.

Discussion
Mr S Mokgalapa (DA) thanked the Deputy Minister for a very good explanation, and commented that mortgage insurance was not an easy thing to understand and explain to the people. However, he now had an insight into what mortgage insurance was all about. He asked for clarity on the accessibility of funds, the issue of guarantees and capitalisation, self sustainability, and the choice people had in terms of houses and location.

Ms G Borman (ANC) said that mortgage default insurance was quite clear and understandable. People out there were in desperate need of proper homes. She asked if the R1 billion would be paid into the National Housing Finance Corporation (NHFC) account, and whether it would generate interest. She asked if the funds were guarantee funds.

Mr R Bhoola (MF) noted that the capitalisation process had to run concurrently with the model it came with.  He asked what would happen if a person were in default, and whether it would be contrary to those who got a propositional subsidy.

Ms A Mashishi (ANC) thanked the Deputy Minister for providing more clarity on mortgage default insurance, but asked for further details on borrowers and lenders.

Other questions were raised included what was the different between the guarantee funds and capitalisation funds, and what benefits did the guarantee funds offer?

The Chairperson noted that the Committee had many questions about the National Housing Finance Corporation (NHFC), because people did not see it “on the ground.”  There were evictions that took place, and the NHFC was responsible.

Mr Nene replied that he could not pretend to have all the answers, but he would try to answer as well as possible.

The Department of Finance worked according to a set of principles, so it would be important for the Committee to work closely with the Department.  Peoples’ financial situation would determine whether they could access the funds. There was really not much of a difference between guarantee and capitalisation funds, but putting money were it was supposed to be was called capitalisation funds. The guarantee funds would be mortgage insurance funds. So far, the business model developed by the Department had caused some delays.  People were not going to be arbitrarily blacklisted, but y would have an opportunity to put their houses in order first. The R1 billion funds would be put to good use, and if it was not going to work, then the Department would find suitable ways to deal with the situation. More importantly, the government had a role to play to ensure that the people of South Africa were housed.

The Chairperson thanked the Deputy Minister for the brief explanation of mortgage default insurance. She suggested that the issue of the Municipal Infrastructure Grant (MIG) should be looked at in the future.

The meeting was adjourned.