Mortgagee pain on the rise, but not in the core mortgage book yet

There is one sure way to capture the mood of the real estate market and the economy right now. Go to trademe.co.nz or realestate.co.nz and search for properties with the word "mortgagee". You'll get a quick précis of what type of property owners are in trouble and how fast the new language of real estate is changing. "These owners are serious about selling," says the listing for the mortgagee sale of one Auckland apartment. "Don't dilly dally on this one, the owners want it gone," it says. Apartments, townhouses, cheap rental properties, half developed investment properties, un-built sections, coastal property and resort property dominate in these mortgagee listings. So far, mortgagee sales have been limited to stretched developers, maxed-out amateur rental property investors, over-committed renovators and coastal and resort property speculators. The lenders forcing the mortgagee sales have tended to be finance companies, receivers for finance companies and some of the second tier banks and building societies. So far, regular Mums and Dads living in their own homes are still making their payments and where they aren't, banks are working with them on delayed payment schedules, payment holidays and even debt restructures. Mortgagee sales are currently limited to the ghettos of property developers and leveraged up property investors and speculators. But the pressure is building and may soon leak out into the "˜real' market, according to our analysis of mortgagee sales. At interest.co.nz we monitor the number of listings of mortgagee sales, of all residential properties and all rental listings on both major websites. We started this in March and mortgagee listings have more than doubled since then to a record 509 as at the beginning of last week. They stood at 491 today. However, that remains a very small proportion of total sales. About 0.44% of total sales listings are now mortgagee listings, which is more than double what it was just 8 months ago, but still very low. The arrears rate for mortgages in New Zealand is also relatively low at under 0.5%. The threat of the sort of massive mortgagee sales seen in the United States is remote. There's a couple of good reasons for that. Firstly, New Zealanders are very good at paying their mortgages on time. There's a structural reason for this. In New Zealand the bank essentially has a right to chase a borrower down for repayment, regardless of where they live. It's not possible in New Zealand to simply decide to abandon a big loan and leave it with the house. Handing the keys back to the bank in New Zealand is no solution. Yet it is in the United States. About half of the states in the United States are so-called "˜non-recourse' states where keys can be handed back to the bank and the borrower can walk away "˜scot free'. This has been a major factor in the mortgagee sales or "˜foreclosures' that have swept many states in late 2007 and through 2008. California, Nevada and Colorado have been particularly hard hit. All three are "˜non-recourse' states. In some counties in these states, more than half of all sales are foreclosures. Some US banks have moved to "˜shoot first and ask questions later' on foreclosures to ensure they are not left holding the baby in a group fire sale situation. This has accelerated the scale of America's housing wipeout. The second major reason why mass mortgagee sales are less likely here is that consumers and homeowners are less likely to have very large personal debts that push them over the edge, unlike in the United States. Some US homeowners have as many as 10 credit cards, while the average in New Zealand is around two for those with credit cards. But it is clear mortgagee sales are on the rise. Banks are under pressure from the government to avoid them, and borrowers will also want to avoid them. However, a deep recession and growing unemployment could expand the lexicon of real estate language of desperation.