Responsible mortgage lending in New Zealand: some evidence in the light of the global credit crisis

This research attempts to assess whether consumer mortgage lending is being carried out responsibly in New Zealand through an investigation of banking corporations’ and mortgage brokers’ lending processes and of their related disclosures to borrowers. The research assesses whether changes were made to these lending practices since the global financial crisis began, to ensure more responsible lending practices. Through this exploratory investigation the research aims to inform the question of “just how socially responsible Australasian banking corporations are?” This paper commences with a review of relevant literature on the global financial crisis, corporate social responsibility and its role within financial institutions developing a theoretical framework in which to view responsible consumer mortgage lending. Data for the study were collected by means of a questionnaire sent to a sample of 300 mortgage brokers and 9 banking corporations operating within New Zealand. Corporate disclosure analysis was subsequently undertaken. Documents reviewed included the corporations’ corporate social responsibility reports, independent assurance statements, annual reports, media releases and websites through the period 2006 – 2010. The key characteristics highlighted in the theoretical framework, namely, ‘transparency’, ‘equality’ and ‘adequacy’ were used to interpret the responses to the questionnaires and corporate disclosure information to allow an assessment as to whether consumer mortgage lending is being carried out responsibly in New Zealand. The findings indicate that consumer mortgage lending in New Zealand overall, is being carried out in a responsible manner, with an emphasis being placed on prudent lending practice by banking corporation respondents. This has been further strengthened by a number of changes that have been made as a result of the global credit crisis. The results have illustrated concerns regarding three keys areas of the responsible lending theoretical framework, namely, commission payment processes, adequate insurance protection requirements and the continuing availability of subprime lending through ‘second-tier’ lenders. This paper adds to the limited literature of sustainability reporting in the financial sector. The study is important from a public policy perspective on disclosure of banking corporations’ lending practices and contributes to a global dialogue on corporate social responsibility in the financial industry.