In a letter to investors obtained by the Otago Daily Times, the Dunedin-based chairman of manager Fund Managers Otago Ltd, John Farry, said that while "good progress" had been made last year reducing the level of "non-performing loans", there had been a combination of factors, including delays in mortgage settlements during Christmas, prompting the suspension decision.
The outstanding Christmas mortgage settlements were "delayed, but otherwise all proceeding" towards payment, Mr Farry said when contacted yesterday.
"We are responsible lenders and the fact we have survived [the recession] is indicative of that; we just needed a breather," he said of the 90-day suspension.
He said the "hard battle" began six years ago, and between the downturn in the property market, the general recession and property valuations "plummeting", the company had worked "with the support of the trustee [Trustee Executors Ltd] and is getting to the end of it".
Mr Farry had written to investors that he believed the fund would build up "sufficient cash reserves" during the 90-day period to allow redemptions to recommence at the end of the suspension period on May 14, saying yesterday he "was confident", repayments could resume on May 14.
The suspended $54 million NZMIT PIE Fund is spread over 50 mortgages; 61% in the North Island and 39% in the South Island.
About 62% are commercial mortgages, 34% residential and 4% farm related - with an average mortgage size of $1.06 million.
NZ Mortgage Income Trust is also one of 27 creditors of fallen property tycoon Terry Serepisos, but Mr Farry said yesterday the company "was not in danger of [financial] loss, as advances on his [Serepisos'] properties were satisfactorily secured".
The NZ Mortgage Income Trust Funds lend against the security of a first ranking mortgage to homeowners, landlords; of residential and commercial premises, commercial building owners and farmers.
NZ Mortgage Income Trust had three funds totalling $86.3 million under management, as at December, with a total 2670 investors, covering 177 mortgages throughout the country.
The fund's level of liquidity had subsequently fallen "below the best practice guidelines of 5% of the value of the fund", he said.
"Accordingly, as manager we have decided to suspend redemptions from the fund as at February 13, 2012, for 90 days to protect the interests of all investors," Mr Farry said.
The fund's trust deed allows for redemption requests to be suspended; "for an initial period of up to 90 days", and also for the fund managers to extend the 90-day term if deemed to be prudent.
"As manager, we have decided that until the mortgage settlements occur and liquidity levels improve, we should not allow the fund's cash reserves to fall further," Mr Farry said.
Mr Farry said the suspension was "fully supported" by fund trustees Trustees Executors Ltd, and said quarterly income distributions to all investors would continue "as usual".
"This decision will only affect a minority of investors in the fund but we are required to advise all investors," Mr Farry said.
In mid-2008, NZ Mortgage Income Trust moved to reassure investors it was in a "sound condition", and while not immune to current market conditions, it is adequately protected.
One of the trust's funds, started in 1994, has more than $153 million invested, secured mainly on first mortgages.
Commercial and industrial loans make up 47% of the mortgage portfolio, residential loans are 42%, farm loans are 6% and bank deposits make up 5%.
A second fund, started in 2007, had $6 million in it and it too was secured against first mortgages.
