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Lenders justified in refusing to finance wraps: NZMBA

Lenders are justified in refusing to finance wrap loans, according to New Zealand Mortgage Brokers Association chairman Brian Berry.

Wednesday, February 18th 2004, 11:23PM

by Jenny Ruth

That’s because the ultimate buyer of the house is a third party outside the primary lender/borrower relationship.

This third party "can be seriously disadvantaged if, for some reason, they have major difficulties at any stage with the repayments made to the primary borrower," Berry says.

The third party has no real protection an can lose a significant amount of equity if they default, he says.

With wrap mortgages, 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.

Berry says at least the third party can control whether they go into default, but the potential exists for the third party to be even more disadvantaged.

"They are even more at risk if the primary borrower (the vendor to the third party) defaults with the primary lender, as they do not have any rights with that primary lender. Therefore, whilst they might have paid all their payments to the primary borrower, if that primary borrower defaults with the primary lender, they again can potentially lose any equity they may have built up," Berry says.

Lenders rightly object to that lack of protection for the third party, even though they have no contractual relationship with such people, he says.

"A lender could suffer significant adverse publicity, if one of these deals went wrong." The third party is likely to go to the media to try to put pressure on the lender to help them out. "This is a no-win situation for a lender to be placed in and is rightly a situation they wish to avoid."

Broker lookinig for funds to wrap mortgages

« Broker looking for funds to wrap mortgagesSigns housing market slowing »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 ▼2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 ▼3.15 3.29 ▼3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 5.50 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.55 2.65 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac ▼3.39 3.45 ▼2.99 ▼3.35
SBS Bank 4.54 3.09 3.19 3.49
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 2.59 2.69 2.99
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 2.99
The Co-operative Bank - Standard 4.40 3.05 3.19 3.49
TSB Bank 5.34 3.35 3.49 3.79
TSB Special 4.54 2.55 2.69 2.99
Wairarapa Building Society 4.99 3.65 3.69 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.12 3.19 3.17

Last updated: 4 August 2020 11:33am

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