The Minister of Finance, Dr Michael Cullen, says the Crown and New Zealand's largest mortgage lending banks have exchanged letters on the approach the banks will take in handling distressed mortgages.
Dr Cullen said the Labour Government places high value on home ownership for New Zealanders and on assisting to keep them in their own homes during periods of temporary financial distress.
To that end, the banks have assured the Crown that distressed mortgage loans will be evaluated on a case by case basis and where there is a reasonable expectation that mortgage-servicing could be resumed within a reasonable period, they will use their best endeavours to work with borrowers to avoid forced sales where appropriate.
Banks will restructure mortgage loans by capitalising interest or temporarily reducing servicing obligations in order to assist borrowers to deal with short term financial difficulties. Foreclosure will be a final resort, not a first option.