Many homeowners with mortgage loans found themselves under tremendous stress in 2020 as a result of the Covid-19 lockdowns. People lost their jobs or were living off reduced incomes and couldn’t pay their home loan installments. Some of these homeowners also face a negative equity situation where their outstanding loan exceeds the value of their property. This means that not only will they face losing their home, incurring crippling legal expenses, and having their family evicted, but they will also be burdened with a significant debt shortfall and an impaired credit record.
With this in mind, Nimble has now launched Rebound, a new mortgage resolution solution that addresses these properties with negative equity. Rebound offers lenders a better outcome than the Sheriff’s auction which is typically the last resort they face when trying to realize the security underpinning their mortgage loan. And Rebound unlocks the property so that trapped borrowers have a chance to have a fresh start.
Rebound works by Nimble agreeing to buy the property from the homeowner at a realistic market value and negotiates with the bank to provide significant, and preferably complete, debt relief.
Nimble assesses what improvements can be made to the property, typically through targeted refurbishments, and then resells the property over the next 6-12 months in an orderly fashion outside of a value-destructive legal process. As part of the process, the homeowner is offered the option to stay in the property at an affordable rental while it is being marketed, they avoid legal action and are finally paid a “Home Booster Bonus” – a cash payout once the property resells so that they can find a new home and make a fresh start.
The Rebound program offers banks a number of benefits over the Sheriff’s auction. An auction requires a Court judgment which may take as long as 36 months to achieve due to case backlogs and increasing legal obstacles. During this time, rates arrears may accumulate, legal costs run up and interest continue to accumulate. Finally, at the auction itself, the bids are frequently won by syndicates at well below market value and the bank risks significant reputational risk if their client is evicted by the buyer and goes to the press to complain about their home being sold at less than market value.
Rebound avoids all of these pitfalls for the lender by offering a quick, cooperative, and transparent process with a better economic result and no client conflict.
The opportunity to offer this solution is enormous. The Covid-19 lockdowns resulted in South Africa’s top banks restructuring R176b in loans while a further R38b defaulted. Much of this debt will eventually lead to asset realization and there is little prospect of an improvement in the outcomes from Sheriff’s auctions.
Nimble has already launched several pilots to test its Rebound solution and the response from banks and homeowners has been overwhelmingly positive. Previously uncooperative and distressed clients have leaped at the opportunity to resolve their debt and move onto a new homeownership journey. Banks, meanwhile, have started to shift volumes away from Sheriff’s auctions recognizing the many benefits of the Rebound solution. While distressed mortgages will remain a dark cloud on South Africa’s credit landscape for some time to come, Rebound now offers a silver lining and unlocks new property ownership and lending opportunities.