Managing your Mortgage
Keeping your finances under control.

Cook Islanders have a spiritual as well as a cultural attachment to the land, a deep and strong connection to the very earth they occupy. It is a birthright that, thanks to the introduction of the Cook Islands Act of 1915 into the New Zealand parliament, no one can take away.
Unfortunately, the lease on that land can be lost to a family, for as long as 60 years in some cases – roughly, the span of an entire generation. This happens as a result of mortgagee sales, which can occur when the banks call in a loan on a home or lease after payments fall precipitously into arrears.
It is a sad situation – families forced out of their homes, leases lost for as long as six decades – but it is preventable with a bit of planning and foresight and, sometimes, as strange as it sounds, plain old good fortune.
This week, Turama delves into the subject of bank loans and mortgage payments and the financial quicksand to avoid so all the generations to come can take comfort in the feel of family-owned soil beneath their feet.

Jackson Enua
Head of Business & Consumer Financial Services
Westpac Bank Cook Islands
Q: What is the procedure when someone applies for a mortgage?
A: We do an interview with customers when they come in to apply for a housing loan. During that interview, we will get information from the customers, like their employment details. We get them to complete what we call a statement of position. This clearly states their assets and liabilities and how much equity they have. It is important for us to see how much the customer is worth. We also obtain some information about credit history or saving history.
Q: Do you require a down payment?
A: We provide 100 per cent finance. What we do is, in terms of distribution of the funds, we control that. The customers come in with the costings to build the house, with every document that is required. So when we are at the stage to distribute the funds, we control that. We don’t give the money to the customer in a bulk payment and then they go out and use that without any control from us to see where the money is going. For every stage of the construction, they will have to bring the invoices in, we make an inspection of the house and if we think, OK, it is according to the costings, we approve that, and we move on to the next stage. That way, it’s controlled, from our perspective and from the customer’s perspective as well.
Q: What are the pitfalls people should watch for in order to avoid financial difficulty?
A: There are some common reasons why people fall into arrears on their mortgage payments. The first one is a change in employment circumstances. Or sickness or death changes the ability of the customer to service the loan. The other thing is a change in lifestyle. Some people look around and say, he’s got that, why can’t I have one? It’s basically living beyond their means. Probably sometimes it’s a lack of budgeting their income because, when they get their money, they just go out and splash it or spend it on other things that are not needed for the family. These things can have an impact on a customer’s ability to service a loan.
Q: What should you do if you find yourself in financial distress?
A: It is important to keep talking to the bank. We don’t know until you tell us. We will sit down and talk to you. We might look at ways of restructuring the loan, based on your circumstances. We don’t come in and pull the plug right away if you miss a payment for one month or two months. We need to talk and that is very important from a bank-customer point of view.
Q: Communication is the key, then?
A: That is the important thing. You can’t bury yourself under the sand. If you know that you are in some stress and you can’t afford to keep up the payments and are hoping it will go away, it will not go away. It’s best for you, the customer, to come in and talk to us so we can look at ways to assist you, based on your circumstances at the time. If we do move down that road to sell the property as a mortgagee sale, at least we’ve already had the discussion with the customer. If we have to go that way it means, at the end of the day, there is no more hope for the customer to repay the loan.
Q: Have you seen a trend of increased mortgagee sales in the last year or so, what with the worldwide recession?
A: For Westpac, there have not been many mortgagee sales. What I’ve seen is some of the owners voluntarily go about and try to sell the properties rather than having the bank move in and sell that via a mortgagee sale.

Brent Fisher
Owner and operator
Cook Islands Realty Ltd
Q: Can you give us a brief overview of the market trend on the island at the moment?
A: Since 2008, we’ve had a spark in the market as far as mortgagee sales. I think that has something to do with the recession. Last year, probably 75 per cent of our sales were mortgagee sales.
Q: To a layman, the term ‘mortgagee sale’ sounds like someone has lost their house and is now out on the street. Are there sad tales behind these transactions?
A: Any mortgagee sale is a sad story. It is a sad thing for those people affected by it but, unfortunately, it’s just the reality. As a realtor, we just try to get the highest price we can for the people and, in some cases, they’re given money back from the banks. The bank just doesn’t sell it for money owed; the bank will try to get the price they can for the property.
Q: Is the Cook Islands still being hit hard by the recession?
A: I think we are, actually. Even though we say we’re recession-free, that’s just silly talk. Because we’re affected by the tourists who come here and they’re affected by the recession, so how can we be recession-free? That’s probably the main problem. The banks have all of a sudden got their hackles up. They’re looking really closely at their customers. This has an affect on sales as well because, obviously, all our sales aren’t just mortgagee sales. It tends to lower the value of the houses. In some cases, we’re getting hardly above – and sometimes not even – what it costs to build a house. If you’re a buyer and you have some money and you want to invest, it’s a good time to invest in property.
Q: Do you have any advice for people so they don’t end up losing their house to a mortgagee sale?
A: When you get a quote from the builder, make sure you get something in writing and make sure it’s a proper contract. With some builders – and I’m not saying they’re all like that – the money just disappears. You get the foundation down and the frame up and it’s, ah, we’ve run out of money, we need some more money. So just be careful: get some advice from a lawyer and get a proper quote. You just pay to whatever stage you’re up to and that way you have a lot more control on the money.
Q: Do you have any advice for someone looking to start a business?
A: If you’re buying, have a look at the taxes, have a look at the books. Just make sure that what people are showing you is correct. If you’re serious about buying a business, get it all checked out.
Q: Whether buying a house or a business, it’s all about doing your homework.
A: Absolutely: do your research. Pay a lawyer. I know it costs a lot of money but, at the end of the day, it’s a very cheap thing to have that peace of mind. You’re going to end up spending the next 30 years of your life paying this mortgage off. What’s a couple thousand dollars when you look at it like that? It’s nothing, really.

Terry Rangi
Chief Executive
Business Trade Investment Board
Q: What is the BTIB’s policy for dealing with a foreigner who wants to purchase a lease?
A: Whilst we don’t oversee leases, we can provide endorsement for a lease if a business activity will take place. We’ll process a foreign business application where, say, those applications require the transfer of hotel from one person to another and there may be a renewal of a lease. In that instance, the BTIB and its board can endorse that lease. From our point-of-view, we require a three-year commitment from an investor before we will consider a lease. But the process still must go to the Leases Approval Tribunal, which is the final bastion for approving a lease.
Q: Is the idea to have some kind of safeguards in place to ensure the country isn’t taken over by foreigners?
A: There hasn’t been a planned strategy by us. The question you’re asking has more to do with what sort of investment policy we need and what direction we should take. In the past, the decision as to who has the final say has been determined by Government and Cabinet. Presently, under the current regime, it’s determined by our board, which comprises five members from the private sector from various backgrounds. At the moment we’re reviewing our policy, looking at what direction foreign investment should take. For example, we have reserved areas for Cook Islanders in our investment policy.
Q: Are you actually getting many inquiries these days from foreign investors, what with the recession?
A: We’re still getting applications coming through from the sale of a local business to a non-local. But this doesn’t compare with 2001-2002, around that period, when there was a much higher number of applications – a lot in the fisheries. What we’re finding now, it’s not so much new projects; it’s more the sale of existing businesses. Things like fishing charters.

Charles Little
Barrister and Solicitor
Q: How can people avoid losing their homes to a mortgagee sale?
A: In my view, what borrowers need to do is think, in terms of their loan, what happens if I lose my job? What happens if I get sick and I can’t work? What happens if some other situation arises and affects my ability to repay? A lot of borrowers don’t really look at that. They take an optimistic view and what we often find is that, due to no fault of the borrower, during the term of the loan, circumstances will change. For example, someone who is servicing the loan might get sick. They can’t meet the mortgage repayments and, as a consequence, the loan falls into arrears and into default. What people should be doing is looking at, not only best-case scenarios when they borrow, but worst-case scenarios. Because the worst outcome is that you lose your property, and that’s what we want to avoid.
Q: And that lost property results in a mortgagee sale?
A: The last resort is a mortgagee sale. Generally banks, at all costs, will try to avoid a mortgagee sale and, in order to do that, often an approach will be made to the borrower to sit down with them and try to work out either a re-structuring of the loan or to come to some sort of agreement that the borrower can meet the terms of, to try to repay the loan. All options are explored.
I know there’s a perception out there that there are a lot of mortgagee sales but, as a percentage of the lending that goes on, it’s actually a very small fraction of the total amount of borrowing . In my view, it would be less than five per cent.
Q: But the statistics still show an increase in mortgagee sales. Why is that?
A: I believe there are more mortgagee sales because of the current state of the economy. Living costs here in the Cook Islands are very high and I haven’t seen wages increase at the same level the cost of living is increasing. As a consequence, people are struggling.
Q: What should people do if they start having problems making their mortgage payments?
A: My strong advice is that, if you have a loan and you start having problems with repayment, that you should immediately contact the borrower. It’s crucial that that’s done because a failure to respond or do anything can mean you will be faced with orders that the borrower obtains to enforce its mortgage. Then the borrower pursues a mortgagee sale. Sometimes people don’t do anything until they suddenly see their property advertised in the paper and often by that stage it’s too late. The key to whenever a problem arises, is dealing with the issue as soon as possible.
Q: We’re seeing million-dollar price tags on properties listed for mortgagee sales. Who is actually buying them?
A: Under most leases, when you conduct a mortgagee sale, there is a process you have to go through. The process includes getting the consent of the landowners and you also have to offer them the right of first refusal. That’s the opportunity for a land owner to purchase the lease-hold section on the same terms and conditions as the current purchaser. If they do exercise that right of first refusal – and it does happen frequently – then that landowner steps into the shoes of the purchaser. A large percentage of landowners, when they are offered the right of first refusal, do exercise that right.
Q: What is the LAT?
A: The Leases Approval Tribunal, which was formally known as the Leases Approval Committee, is a tribunal set up by legislation and its function is to vet and approve all leases, assignment of leases, sub-leases – basically any lease that’s in excess of five years – and to also vet mortgages. If it’s an application for a deed of mortgage, the tribunal will want to be satisfied that the borrower has the means to repay the loan. If the tribunal is not satisfied, they won’t approve it. The same with leases.
Q: So, even though the bank has agreed to grant a mortgage, the LAT could still say no?
A: Yes, the LAT can overrule a bank. The object of the LAT is to be the protector of Cook Islanders’ interests. The LAT would want to be satisfied that the purchase price of a lease was adequate, fair and reasonable, basically to make sure local people don’t get ripped off. We have these checks and balances in place, and the whole idea is to protect Cook Islanders, just to ensure there’s equity, fairness and reasonableness in all dealings. The days of getting a piece of land in exchange for a bottle of whisky are long gone. We’re in a new era – Cook Islanders are more educated, they’re more acutely aware of their rights and their obligations.
Q: The good news is that we are in no danger of becoming America’s 51st state or, say, a Japanese territory. This is Cook Islands land and it shall remain that way.
A: Absolutely. That’s one thing we have to be very grateful for here in the Cook Islands. Basically, land here is owned communally by groups of landowners. That’s known as the ‘fee simple.’ And you can’t sell the fee simple. In other words, Cook Islanders cannot be permanently divested of their lands. All that we can do in the Cook Islands is sell a lease of the land and there’s a restriction of leases to 60 years. Generally speaking, what happens is, once that lease has expired, the land comes back to the landowners. Unlike Hawaii, where, at one point, most of Waikiki was owned by Japan and there’s lots of foreign ownership. Hawaiians have been disenfranchised of their land on their own islands, with no prospect of ever getting that land back. We, thank goodness, don’t have that situation here. It’s Cook Islands land for Cook Islanders in terms of the future.

By John Ireland

Herald Issue 463 10 June
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