A fund set up to encourage banks to finance housing in high-risk areas has not been used, reports Mungo Soggot
THE government agency set up to entice banks into lending money for housing in high-risk areas has concentrated on areas where it admits there is no risk.
In its two years of existence, the Mortgage Indemnity Fund has not used a cent of the R300-million budget it was given by the government to insure banks against loan defaulting in high-risk areas.
The main reason the money remains untouched is that the banks the fund has been working with are operating in areas where there is little to no risk that homeowners will default on their loans. Fund chief Nkukuleko Sowazi says banks should have been lending in many of these areas all along, adding their policy of redlining had been made “willy nilly” and without thorough research.
Sowazi rejected suggestions that the fund was being too cautious in its attempts to draw banks into black areas.
Housing Minister Sankie Mthembi-Nkondo says in fact that non-use of the fund is an indicator of its success. Its record, she says, “breaks the myth that this market cannot pay”.
“The fund has to be cautious,” she adds. “It should not be seen to be grabbing money.” The fund is to be shut down in May, though she hopes to extend its life.
The fund was set up in 1995 as a mechanism to persuade banks to approve bonds for houses in what have been considered no-go areas. The refusal by banks to approve bonds for housing in risky areas has been a key stumbling block to the government’s housing drive.
The fund has provided indemnity cover to 469 previously redlined areas, resulting in the approval by banks of 91 000 bonds worth a total of R6-billion. Sowazi says the fund has also blacklisted 65 areas.
The fund has a contract with a private company, Social Surveys, to determine an area’s risk before deciding whether to offer cover. Communities that have been blacklisted are welcome to appeal, Sowazi says.
The Mail & Guardian reported last week that the fund had angered residents in Meadowlands, Soweto, who say the fund blacklisted an entire zone of Meadowlands because some of its residents had been involved in a five-year dispute with three banks.
The dispute – with ABSA, Perm and Standard Bank – is about the poor construction of their R60 000 homes.
The residents say the banks bear some of the responsibility for granting loans for houses they knew were not going to last. Despite their unhappiness, the residents have continued to pay their bonds.
When they discovered last month that they had been officially redlined the residents complained to the provincial government, saying fund official Tlhoriso Thelejane had told them the redlining was to pressure the community to stop its “bad apples” from complaining.
Thelejane initially said his comments were taken out of context. Sowazi says Thelejane denies saying any of this.
Sowazi also dismisses any suggestion that the fund colluded with the banks to redline the area, though he said the dispute probably did affect the area’s risk rating.