Its job half done, it's time for the MIF to quit
THE Mortgage Indemnity Fund, established to encourage banks back into the low-cost housing market, looks set to close its doors in May, as planned.
"Up until this point of time our shareholder, the government, has given our board no reason to believe that the MIF will, or should, continue to exist beyond the time frame set in 1994," says Nkululeko Sowazi, the MIF's chief executive.
While he will not comment, market players expect new long-term measures to be introduced which ensure continued bank lending to the low-cost housing market and prevent disruptions while the MIF is disbanded.
Lance Edmunds, housing general manager of the Council of SA Banks, says he expects banks will exert strong pressure on the government to continue with the MIF unless problems related to the record of understanding, signed by banks and the government in October 1994, are resolved. "I suspect that the government, the banks and the building industry will come together and come up with an alternative which gives everyone comfort," Edmunds says.
The MIF was one of the key initiatives to flow out of the 1994 record of understanding. It came into operation in June 1995, becoming operational in September that year, to "normalise" a lending environment destabilised by the political unrest of the apartheid years. Its termination date was set for May 1998.
Sowazi says the MIF was established as a short-term mechanism to help sort out "a very specific set of issues that prevailed, and to a lesser extent still prevail, in the market".
It provides banks with cover against the risk of not being able to obtain vacant possession of property following a default, but only after all available legal remedies have been used.
At this stage not one claim has been lodged by banks against the MIF because the normalisation process has gone slower than expected, although the situation could change before its closure.
The banks' book of non-performing loans is roughly estimated by Edmunds to be worth R750-million.
Sowazi says: "Our budget for our lifespan was around R300-million, but obviously our contingent liability is always as big as the exposure. We do not, however, envisage a situation where the claims paid by the fund will ever outstrip the benefits that have gone into the communities we cover.
"We are not best placed to comment on our performance, but we believe we have been fairly successful in starting a process of investment and normalisation, but not to the degree we would have liked," says Sowazi.
He says since the MIF started, it has been able to unlock R7-billion in lending in areas previously neglected by the banks and also create a secondary or resale housing market in these areas. In addition, 180 new development areas have been covered by the MIF, where close to 200 000 units are planned, 35% of which require end-user finance.