Collapse of NZ "Guarantor" Puts $300M Deposits for 10K Homes at Risk

Guaranteeing things is an excellent business until it fails suddenly and completely.

In the Great Financial Crisis guarantors were wiped out. It's happening now down under where 10,000 Property Buyers are Caught in the Collapse of Deposit Power.

A leading national property finance company has collapsed potentially leaving an estimated 10,000 residential, commercial and property investors in the lurch about the fate of nearly $300 million worth of deposits.

Deposit Power, which provided interim finance to property buyers, has closed its doors after the collapse of New Zealand's CBL's insurance, which was an issuer and guarantor of deposit bonds.

Sale Complications

Worried mortgage brokers, who recommended the products to clients, are seeking advice on whether clients need to buy other cover, or secure additional or replacement financial risk bonds. It could mean unspecified risks, uncertainty and deal delays for tens of thousands of counter parties, financiers and their representatives, including lawyers and other brokers.

Mortgage brokers, who act as an intermediary between borrowers and lenders, are being warned the status of existing loan guarantees is unknown, pending applications will not be processed and no payments have been taken.

Investors calling the Sydney-based office are being answered by a recorded message the company is facing "external issues" and that it is unable to process any deals.

Deposit Power's bonds were sold to individuals, first time buyers, retirees, self-employed borrowers, trusts, corporate entities, or self managed super funds purchasing commercial or residential property. It was established in 2012 and regulated by the Australian Securities and Investments Commission.

They were also heavily marketed to first time and off the plan property investors. A deposit guarantee is an alternative method of placing a deposit on a property.

CBL in Interim Liquidation

The New Zealand High Court last month ordered CBL Insurance be placed in interim liquidation on an application by the Reserve Bank of New Zealand as the insurer's prudential supervisor.

In New Zealand, liquidators are warning those insured by CBL, or any beneficiaries of its policies, to seek advice on whether they need to buy other cover or secure additional, or replacement financial risk bonds.

Information Lacking

According to the article, CBL has yet to inform Australian liquidators about whether Sydney-based Deposit Power will fully, or partially, back the bonds.

Here's a hint: When authorities shut down guarantors, it's because they have gone bust. The question is not whether anyone will be fully paid back, it's whether anyone will be paid back anything.

Guarantee Scams

Guarantors make money in good times but because of leverage they go bust in bad times. In the case of CBL, we see the true nature of its guarantee: It was worthless.

Mike "Mish" Shedlock

Comments
Robin Banks
Robin Banks

Looking at the share price of the UK's largest estate agent then NZ isn't the only one with a deflating housing market. https://www.google.co.uk/search?q=countrywide+share+price&rlz=1C5CHFA_enGB643GB646&oq=country&aqs=chrome.1.69i57j69i59j69i60l3j0.5524j0j7&sourceid=chrome&ie=UTF-8

Snow_Dog
Snow_Dog

Can’t they just bundle up all the bad NZ mortgages with a few good ones? Then they could rate them as tranches with AAA credit worthiness and sell them to unsuspecting US municipal pension funds in dire need of yield?

Runner Dan
Runner Dan

NZ simply needs a government/central bank to purchase $1.8 Trillion in mortgage back securities from their insolvent lending institutions, revise accounting rules from mark-to-market to mark-to-whatever you want it to be, restrict inventory through various “let’s keep people in ‘their homes’” programs, and have the government backstop most of the loans going forward. Any potential “housing crisis” will be thwarted!

Stories