THE ORIGINATORS:

Originators are amongst the newest of financial intermediaries in the South African financial services market. Simply put, their function is to acquire home loan applications from the estate agents and Developers and submit them to the banks for approval and processing.

A BRIEF HISTORY OF ORIGINATION

In 1998, Mortgage.com approached the banks to originate home loans via the internet. The USA had seen a rise in the deployment of these websites and predictions were that the platform would outstrip physical channels. Growth in the industry has been rapid. In Pretoria alone there are more than 70 origination firms.

POSITIONING THE ORIGINATOR IN THE HOME LOAN PROCESS CHAIN

Up to the 1970's, clients were expected to approach their banks for home loans.

The function of the Originator's sales force is to collect the application from the client who has recently purchased a house from an estate agent. The application documentation is collated and submitted to the credit department of the bank for approval. Once approved, an assessment of the property occurs and if satisfactory value is found, the bank documents a formal grant for the parties and instructs the attorneys to transfer the property and register the mortgage. The originator consultant bows out of the transaction after formal grant

The bank-based home loan consultant has a single choice of bank and that bank's limited range of product to offer the client. In addition, the client has limited choice of period and credit conditions and appears practically unable to negotiate interest rates with a huge bank. The originator home loan consultant, on the other hand, is able to position the same home loan application with a choice of banks and does this frequently though often beginning with the client's bank which should best understand the client's financial profile.

The industry has been notoriously paper-based with hundreds of thousands of pieces of paper hitting technology deficient bank processing centres per month. This inefficiency has been exacerbated by the enormous growth in volumes caused by the recent property boom. Bank's therefore insist on digital processing of all applications once again performed by the originator on behalf of the client.

POSITIONING THE ORIGINATOR IN THE HOME LOAN VALUE CHAIN

As implied above, choice alone could have secured the growth of the fledgling originator industry. However, originators' value proposition extends way beyond this baseline.

Choice. Originators virtually arbitrage the products offered by Banks and credit criteria to the benefit of the client. Mega trends such as consumerism, individuation and best advice ensure the rapid adoption of this attribute of choice by clients.

Convenience. Though the banks have largely matched this attribute, the originators have national, mobile networks. Allowing the client to conclude without signing the application form has meant that the client no longer has to visit their branch and endure the queues, parking and security unpleasantries so often associated with this visit. Originators conclude transactions over the phone or at a location of the client's convenience.

Integrity. The purpose of raising this attribute is not to make a judgement call on which institution, bank or originator, best portrays it but rather to posit that the originator need only position equal trustworthiness for the client to feel confident to deal with them. This has proved fairly easy for the originator channel as they have recruited most of their sales and service personnel directly from the banks over the years. Clients value bank-trained consultants managing their home loan application and a generally publicised "bank bashing" reinforces their decision.

Negotiating power. As they have catapulted in size, it has been an obvious progression for originators to claim the ability to negotiate better interest rate concessions from the banks for the "little guy". Originators contract with banks on the basis that the latter will not apply preferential rates in their own channels eg branches, mobile sales forces and virtual platforms. The reason for this is obviously to avoid losing the concentrated volumes of business from the origination channel but, less obvious, is the critical need for banks to drive variable costs into their 80% plus fixed costs businesses.

One stop service. Commonsense suggests that the originator consultant could provide a one stop service for the client, namely, home loan finance, life assurance, short-term insurance, bridging finance, estate planning and property portfolio management. However difficult this has proven to actually achieve in practice, originators are positioning themselves for this service and banks seem to be condoning or even encouraging the activity.

Electronic submission. Banks have encouraged the originators to submit digitally using pricing incentives. The industry has obliged and the client has enjoyed the benefit in speed and efficiency. The banks, on the other hand, could engineer seamless, paperless processing. In these integrated systems, the banks could allow the originators to access such facilities as their credit scoring and valuation technology to make the process even more efficient.

CONCLUSION

The origination industry makes acquiring a home so much easier and convenient so why don't you try it and judge for yourself.