Mortgagee sales growing, creating new type of bargain hunter

A growing number of home owners and property investors are being forced by their banks or finance companies to sell their properties through a mortgagee sale. Mortgage rates are increasing for many as they roll over 2 year mortgages set in the spring of 2006 and find interest rates have risen to almost 9% from 8.1%. Petrol prices have risen 40% and many investors are finding themselves over-extended. Since May 2006, there have been 39 finance companies and mortgage trusts closed, frozen or put into receivership. Many finance companies have been calling in their short term loans or receivers have been forcing sales by developers and investors. So far, the bulk of the mortgagee sales have been linked to these developers or investors who borrowed to the hilt to buy multiple investment properties. Banks have not been forced yet to put many owner-occupiers into mortgagee sales, apart from the usual rare cases of personal bankruptcy. The mortgagee sale is a phenomenon rare to New Zealand and remains a relatively small part of the real estate landscape, but it is growing fast and is even creating a special breed of bargain hunters who look for mortgagee sales or distressed sellers. We at interest.co.nz survey the number of mortgagee listings on the two biggest property websites "“ trademe/property and realestate.co.nz. The number listed every Monday has risen from just under 200 to almost 400 since we began the survey in March. The percentage of total listings remains relatively small at about 0.4% of all listings, although this has more than doubled in the last 5 months. So how big a part of the market could mortgagee sales become in New Zealand? Our mortgagee sales rate is much lower than in the United States, where mortgagee sales are called foreclosures. In some parts of the United States, one in every 35 houses are now being sold in a foreclosure. About 40% of all house sales in California right now are foreclosures. There is even a phrase for those home owners who have moved out of their house and sent the keys back to the bank because they can't afford the mortgage payments anymore. This letter to the bank is called "Jingle Mail" because the keys jingle when the bank's mail bag is collected in the morning. The high number of foreclosures has created a special breed of property investor who hunts for bargains. There are at least two websites dedicated to foreclosures in the United States, including foreclosures.com and realtytrac.com. New Zealand's housing market is significantly more overvalued than many US housing markets by most measures, but most don't expect our mortgagee sales to rise as high as they have in the United States because our lending practices have been less lax than in the United States. However, some hope a similar type of market can be developed here. A New Zealand site called mortgageeauctions.co.nz was set up in December last year. For now Mortgagee sales are a small part of the market. If unemployment rises sharply and interest rates stay high that may change as property investors in particular are forced to sell. The biggest influence will be the attitude of our banks, who have over 90% of the mortgages in New Zealand. Unlike in the United States where home owners can walk away from their house and leave the debt behind, New Zealand home owners cannot walk away. The debt follows them personally. Banks will also be reluctant to force mortgagee sales when almost 97% of New Zealanders net wealth is tied up in their home.