These days the NZ mortgage broking sector is fairly well regulated, and because they all need challenging qualifications and must have all signed up to a recognised dispute resolution process and have their own formal complaints process there is very little trouble in the industry.
However 10 years ago this was definitely not the case, and there was a housing bubble on and New Zealand mortgage brokers were determined to make as much money as they could as fast as they could. A huge number of new investors will getting involved in the property market, driven by exponentially increasing property prices and encouraged enthusiastically by a collection of property Guru up and down the country proclaiming how easy it was for them to make really good money.
A lot of these new investors were from the baby boomer generation, and perhaps they hadn’t saved enough for their retirement but one thing they did have was good equity in the family home. These new investors were attending expensive courses and conferences and signing up to expensive coaching series in order to learn the basics of property investing and help themselves get a head start in the market. Their coaches and lecturers were extolling them virtually daily to just get out and buy something, and that’s all it took, and unfortunately for almost all the investors that’s exactly what they did do.
Many first time investors ended up buying a house here, a rental property there and a new section over there, with each one of the deals promising them huge fortunes. They have no idea of the risks involved as they leveraged the equity in the family home in order to create security for loans, and they signed up for mortgages that they would barely be able to make payments on.
The tragedy of that period was that all of the coaches and lecturers were in cahoots with all of the experts they were recommending, including mortgage brokers, real estate agents, solicitors and accountants, and everybody’s intention was to take as much money off the investors as they could and as fast as possible. While the behaviour of all of these players was shameful, it was the behaviour of some mortgage brokers that cause the most problems, as these brokers in many situations lied and cheated to the banks and the lenders about their clients ability to make payments on the loan, and they lied and cheated to their clients about how risky the loan was and about how expensive the repayments would be. The end result in 2009 was a very large number of bankruptcies and the accompanying social problems like marriage breakups and worse.