Before the New Zealand government bought in new regulations in 2012, the mortgage broking sector had a large number of Cowboys who were in it for the money. These brokers were ex Bank tellers, ex Bank financiers and loan managers, and a large number of them would have lost their jobs or had no real promotion prospects, and mortgage broking would have been an attractive career path for them.
The mass of property boom which ended with a very sudden Thump in 2008 made a lot of mortgage brokers very rich, as their job pretty much was marrying up their clients who were wanting money with the large number of banks and second and third tier lenders who were happy to lend it at fairly severe interest rates.
There were obviously a large number of ethical an honest brokers, but equally there were a number of brokers who simply did whatever it took to get their clients a mortgage. Brokers who was servicing the booming property investor sector found it particularly lucrative, as their clients at the time would have been on a property purchasing splurge. Many brokers would have been able to dress up for finances of their clients with the massive accumulated properties or “assets” and make it look like their clients we’re exceedingly well thing and could easily pay any mortgage repayments.
Unfortunately many if not most of their clients would have been over leveraged and simply unable to manage if things got tight and they weren’t able to on-sell a development for example or they were unable to properly rent their property. Many many clients came unstuck in 2009 and 2010, most commonly those clients who had either accumulated too many buy-and-hold properties and could not service the mortgages when rentals fell. Another category of failed clients would have been developers who simply took on board too many simultaneous projects.
The problem for these clients who were aggressive investors is that if one deal or property fell over then this could easily topple the other deals all properties, and they would be left holding assets that were weigh less in value than the mortgages they had supporting them. Mortgagee sales were very common in the 2009/2010 period, send these clients will often left with massive debts. The mortgage brokers did not get away as well, has Shady practices such as overstating a clients financial position could have landed them in legal trouble with the banks and the lenders.
All told, the problems in this period were caused by greedy investors and greedy mortgage brokers and greedy banks and lenders, and it was no surprise in retrospect that the whole lot came crashing down.