In Knysna, where i stay, the holiday boom has crashed and our tourist based economy is reeling in shock and desperation as hundreds of home have flooded the market. It’s a tragedy that’s painful to witness.
When US and European banks screwed over the world, i was a cynic when South Africa’s major banks and the Reserve Banks were quick to say it would not happen here as we’ve got more protection measures in place.
Several months ago, a leading member of the Knysna community told me how the bank was illegally taking over his home. He asked them to show him proof that they’d in fact loaned the “money: for the bond but they couldn’t or wouldn’t provide such. Additionally, they wouldn’t show him the deeds and then auctioned his R1.7million house off for only R400 001. Worse was the discovery that the bank had in fact bought it, essentially robbing him. A month later they sold it for R700 000, making R300 000 profit on top of the 10 years worth of bond repayments he’d already forked over! He has since joined a national organization that is planning a class action lawsuit against the banks.
Some readers will undoubtedly shrug their shoulders and say that you can’t fight the banks and win but note these facts:
- A bond is an a loan from the bank to the buyer who promises to pay. Basically, the bank gets an IOU from the buyer and then reflects that as an asset in their books.
- The bank must use their own money to fund your bond.
That’s easy enough to understand but in practice that hasn’t been happening. Instead:
- Some banks (we don’t know the extent yet) have been using a third, unrevealed party to finance the bond. In essence, the third party buys your bond, looking to make profit over a long period of time. Your bank then makes a quick buck out of the transaction e.g.
- R1million bond paid over 20 years = R2.4million (that increase is a rip off by itself).
- Bank, without ever having listed your IOU as an asset, sells it to the third party, making (for example) an immediate R400 000 profit. The bank acts as admin as it passes on the remaining R2million to the third party over the next 20 years.
- Alternatively, the bank initiates securitization whereby they bundle your debt and a bunch of others into something that is suppose to have real value which they then sell on the stock market to others who bundle it together with other derivatives and sell it to others who…
- This illegal practice is one possible reason why the banks are so reluctant to renegotiate with the buyer. And when the home owner requests all the documents, which he is legally entitled to, the bank responds by suing, in effect forcing the home owner into an even worse financial position so that his home is auctioned and the bank’s dirty deed remains uncovered.
- And like the housing disaster overseas, there’s nothing stopping that third party insuring your bond or selling it onto others who insure it again. You bank may have too. So would you. Your home can’t be insured 4 times because, very basically, that’s like insuring it for 4 times its value.
The Consumer Act states that you cannot lend what you don’t have (the banks do not have money, they have pieces of paper with people’s signatures on it that they are then giving value to and trading with). The Banking Act says that the banks are not not allowed to be involved in securitization (which involves selling your debt).
Admittedly, today’s blog is sketchy on facts but hopefully gives you a base to start from. If anything, this opening salvo is to make you question your bank. If you are in trouble, you may have reason to fight back. Someone already is. You can read about him in Part 2.
Stand-up for your family. Stand-up for yourself. Take heart, all is not lost…
PS: This is not my specialty. If anyone is better informed, or wishes to correct me, i’d welcome your input.