Mortgage hit for Blue Chip lender

Financial giant GE has provided for losses of $41.9 million on mortgage lending as it fights a landmark legal action over a loan to former Blue Chip investors.

The company yesterday got leave to appeal the Blue Chip case to the Supreme Court after Whangarei pensioners Bruce and Judy Bartle won a court ruling that entitled them to relief from GE's oppressive loan.

Barrister Paul Dale, representing the Bartles, said the appeal was no suprise given the importance of the case, ''and we're just anxious to get it on as quickly as we can given the numbers affected.''

He said several hundred Blue Chip investors may be in a similar position and stand to benefit if the Bartles win again.

The hearing is due to take place in Wellington on October 20-21.

In its latest financial report, GE Finance & Insurance Group notes a contingent liability arising from the appeal and says any potential remedies will be indemnified by its subsidiary, Australian Mortgage Securities (NZ).

This subsidiary is insolvent, with negative equity of $15.8 million at December, and has provided $41.9 million for mortgage receivables ''considered to be at risk of recovery, due to the mortgage insurance process.''

The provision is up from $14.6 million the previous year.

How much these numbers relate to GE's lending on Blue Chip properties is not clear.

The case to be heard at the Supreme Court involves a loan of $629,566 made to the Bartles between September 2006 and November 2007.

The money was advanced by GE, through Blue Chip subsidiary Tasman Mortgages, to buy a Blue Chip investment property for $552,000 and secured on the Bartles family home as well as on the apartment.

At the time, the Bartles had combined pension income of just $23,736 a year and had no way of repaying the loan if Blue Chip failed to deliver on its promises.

When Blue Chip collapsed, the investment property was sold for $250,000 and the Bartles faced a mortgagee sale of their home to repay the loan to GE.

Seeking relief from the debt, the Bartles lost their case in the High Court, but won on appeal.

The decision of the Appeal Court in May was a legal watershed.

It defined GE's loan as oppressive under the Credit Contracts and Consumer Finance Act, dismissing GE's argument that it knew nothing of the Bartles' circumstances and responsibility lay with Tasman.

The question of how much relief they can get from the loan was sent back to the High Court for consideration, and must now await the decision of the Supreme Court.

In the year to December, GE Finance & Insurnace reported a profit of $28.6 million on revenue of $343.6 million, a turnaround from the previous year's loss of $151.6 million.

- © Fairfax NZ News