Broker looking for funds to wrap mortgages

One Auckland mortgage broker is looking to establish a co-operative type structure to provide funds for wrap mortgages.

Tuesday, February 17th 2004, 7:51AM

by Jenny Ruth

A few years ago, Auckland-based mortgage broking firm Financial Pictures had a number of clients involved in selling wrap mortgages, a type of rent-to-buy scheme.

But in the last few years banks have become unwilling to lend on such schemes and Financial Pictures has been losing clients, says the firm’s Daniel Feller.

"It’s almost impossible to do wraps now," Feller says.

He says he doesn’t know why, but it’s probably because of some negative publicity. "Two or three years ago, no bank would have had an issue with it."

But Feller says there’s little difference between a wrap mortgage and getting near 100% finance to buy a car, which is commonly available. In fact, lending on a car is more risky because cars depreciate in ways that houses don’t. The way wrap mortgages work is that an investor buys a house using a mortgage.

They then sell it to someone else with little or no deposit who pays a percentage point or two on top of the original interest rate, getting in exchange an agreement to take ownership in, say, 30 years time.

But if along the way the buyer defaults on repayments, the original owner keeps the title and any equity the buyer might have built up. It’s in the cases where this happens that the negative publicity has occurred.

Feller says that if a car buyer defaulted on their payments and the finance company repossessed the car that would never end up on the front page of newspapers

"If some lending institution kicks somebody out of their house because they haven’t made payments, that might be on the front page." The concept of wrap mortgages has been promoted in New Zealand in recent years in tours by United States writer John Burley.

Feller thinks there is a market for them and would like to keep those clients involved in providing them. So he is looking at helping to form a kind of co-operative of people involved in providing wrap mortgages which could then go to an institution, perhaps an insurance company, to secure bulk finance, say $20 million. Similar groups have been formed successfully in Australia, Feller says.

Buy John Burley’s books Secrets of the Rich here

« Floating rates up, fixed downLenders justified in refusing to finance wraps: NZMBA »

Special Offers

Commenting is closed

www.GoodReturns.co.nz

© Copyright 1997-2020 Tarawera Publishing Ltd. All Rights Reserved