Mortgage Broking Cowboys

Fortunately for New Zealand the regulations were tightened up recently for mortgage brokers to ensure that all brokers are fully qualified and registered. Registration also means that brokers need to be party to a formal dispute resolution process and they also need to behave ethically at all times. This definitely was not always the case.

Mary Foster, Auckland mortgage broker

Prior to 2011 before the regulations reporting the mortgage broking sector had a lot of Cowboys who were chasing quick money. Up until 2008 it was a property boom that seemed never ending, and a large number of mum and dad investors got involved in purchasing investment property for rental, and they needed a mortgage broker to help them get their loans.

If these amateur investors were purchasing property for development, such as infill subdivision, then the financing might have required second tier lenders because it would have looked unattractive to normal banks. Find out more infromation at www.NZMortgageBrokers.org. In this environment the cowboy mortgage brokers flourished, as they made absolutely certain that their clients applications went through unopposed by the bank or a second tier lender. They were prepared to exaggerate the truth and to even tell lies in order to make the clients successful in their application, and while they got away with it in most cases, everything came to a shuddering halt in the 2008 financial crisis.

During the crisis all banks and financial houses found themselves holding mortgages that were upside down because of the very steep drop in property prices, and they found themselves with borrowers unable to make the mortgage repayments. The mortgages were upside down simply because the property was initially valued excessively high and the broker was able to obtain a high LVR mortgage for their client. They almost certainly exaggerated their clients ability to repay the loan and exaggerated their clients net equity. This all became horribly exposed to the banks after the 2008 financial crisis.

When the bands went through the mortgage applications some of the things that the mortgage brokers had done were laughably unethical. Banks found that the broker had exaggerated their clients income or even their security of employment, and had exaggerated the value of the property and the ease of sale of the property in the local market.

When it all came crashing down and 2008 the banks were forced to offer the properties up for mortgagee sale, and this caused a further drop in property prices which further exacerbated the massive problem the banks had. The cowboy mortgage brokers have a lot to answer for during the 2008 crisis.

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