jun 5, 1992 - Govt sells $500 million of mortgages to private consortium

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The state has taken another big step out of the home loans business by selling mortgages worth $500 million to a private consortium organised by Fay, Richwhite and Co.

The sale means that about 20,000 families with mortgages from the Housing Corporation will be paying back their loans to private financiers by October this year.

The Government will receive the $500 million on July 27, and will use it to pay off part of the country's $62 billion overseas debt.

The deal leaves the Housing Corporation with mortgages worth just under $3 billion, which will be administered by the new company, Housing New Zealand, at least until July next year.

But state house lending had already been diminishing, from half of all new home lending in the 1970s to less than 4 per cent in the past year. The Minister of Housing, Mr Luxton, said no decisions had been taken on whether the state would stay in the market beyond next year.

"The market is picking up the role that the Government used to have to play because of high inflation," he said.

"The (existing) mortgages have to remain within the Housing Corporation for legal reasons, but we have the ability to contract that out.

"The decision has been made that the servicing of these mortgages will be the responsibility initially of Housing New Zealand."

Under the new consortium arrangements, the ANZ-Postbank group will buy half of the total mortgages being sold, worth $250 million.

The other half will be bought by the Mortgage Corporation of New Zealand, a new company which has not yet been registered. The Companies Office said name approval had been granted, but the corporation could not yet call itself a limited liability company.

The chairman will be Mr Graeme Nahkies, a former Housing Corporation official who will also continue in his present job as chief executive of the Waikato Regional Council.

The other two directors will be Mr Stephen Norrie, of Fay, Richwhite in Auckland, and Denese Henare, an Auckland lawyer whose role will be to represent the interests of homeowners who will be paying back their mortgages to the corporation.

The corporation, in turn, will be owned by a trust.

Any cash left over when all the mortgages have been repaid will go to charities such as women's refuges, the Salvation Army and Ronald McDonald House, where parents of sick children can stay.

The trust device means that the mortgages themselves will not appear on the balance sheets of any ultimate investors.

Instead, the mortgages will be packaged into bundles, which will then be offered for sale to banks, insurance companies and other big investors as either bonds or promissory notes, carrying promises to pay money in the future.

The offering will be underwritten by the Bank of New Zealand, in which Fay, Richwhite holds 26.8 per cent of the voting shares. The bonds, but not the promissory notes, will also be underwritten by Fay, Richwhite itself.

In effect, the BNZ and Fay, Richwhite will earn a commission on the deal as mortgage brokers. The mortgages will actually be arranged for the consortium by the New Zealand Guardian Trust.

The 20,000 mortgages involved in the deal, out of the Housing Corporation's total of 164,976, will be chosen on the basis of five criteria. They must have:

- Interest rates paying 10.4 per cent or more.

- Loans representing no more than 80 per cent of the value of the property.

- Outstanding balances of between $5,000 and $100,000.

- No record of arrears at any time in the past six months.

- Legally correct mortgage documentation.

Source: GovERNMENt sells $500m of home mortgages.
614 words
5 June 1992
New Zealand Herald

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