Mortgage reduction companies claim to provide borrowers with a system for paying off their home loans faster, charging upfront fees of $3,000 or more for the service.
But most mortgage brokers already provide such information as part of their normal service with no additional fees involved.
Usually, it is the more naïve borrower who ends up paying mortgage reduction companies’ fees.
At the NZMBA’s recent annual meeting, incoming chairman Geoff Bawden said that while NZMBA rules discourage mortgage reduction companies, they don’t prohibit them.
"They’re still going to operate in the market and drag the reputation of the industry down anyway. There’s no easy answer. The reality is we might not like them, but while we’ve got a voluntary organisation we’re not going to stop them from operating," Bawden said.
Retiring NZMBA chairman Brian Berry, reinforced that view, saying that without compulsory membership, any NZMBA prohibition of the practice would lack teeth.
He said the membership application process already specifically asks if the applicant is involved in mortgage reduction and whether they’ve charged fees for such a service.
"The rules state that member brokers shouldn’t be charging any fees other than for performance-related activities," Berry said.
He said NZMBA members should also keep in mind the implications of current regulatory moves.
"If we’re going to move to be a more encompassing body, we will have to represent all members in the market place.
Mortgage reduction companies are part of the market place."
It’s possible that the problem could be left to the market to sort out. "Market forces have already reduced the number (of mortgage reduction companies) quite significantly."
Berry also suggested that likely legislation the NZMBA is pushing for could solve many such problems.
NZMBA committee member Alan Robertson said that if mortgage reduction brokers are doing what they promise and charging an appropriate fee, then that should be acceptable.
"If you don’t have them in, you can’t regulate them, you can’t control them."
