Lombard exits contributory mortgage business

Pressure encourages one player to exit its contributory mortgage business.

Friday, February 22nd 2002, 7:37AM

Wellington-based investment house Lombard Group has decided to close its contributory mortgage business because of regulatory concerns.

Lombard chief executive Michael Reeves says that contributory mortgages did not have tight enough rules.

One of his concerns is that contributory mortgages don't have an independent trustee like many other sorts of investments.

Reeves says Lombard has runs its contributory mortgage business with a high degree of governance.

He felt there were flaws in the current structure and he didn't like Lombard being "tarred with the brush that's being wielded about".

The contributory mortgage industry has been under pressure from several quarters recently including the Securities Commission and Consumers' Institute.

Late last year the commission warned people about the high risks many of these types of investment carry.

Soon after it made this warning it ordered New Zealand Commercial Mortgage Brokers to stop acting as contributory mortgage brokers.

It made this order as it considered investors' funds were at risk because the company had failed to keep proper records, failed to lodge an annual report with the Registrar of Companies and hadn't told investors about significant changes to the terms of a mortgage.

Likewise the Consumers' Institute aired its concerns about contributory mortgages and the level of information investors get in their prospectuses.

Also, former Reeves Moses directors Roger Moses and Gary Stevens ended up in the District Court in Auckland last year on charges relating to the way they ran their contributory mortgage business.

They were cleared on all the charges, however the Crown is appealing the case.

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