The end of wrapping in Qld?????

I often hear how ‘bad’ wrappers are, but to tell you the truth in my opinion there not that bad at all. I’ll tell you why:

1. If people went to a non standard loan program they would be charged a much higher int. rate.

(I know of one case where a guy was paying 11% from GE and refinanced with a wrapper who’s charging him 8.95%!).

2. That is assuming they could qualify for a conventional loan. But most people couldn’t. And not because they shouldn’t get one, but because the banking system here is so conservative.

(For example if you receive a pension from the Gov. alot of banks demand a higher deposit. Now in my humble opinion getting money from the Gov. is more secure than a biz, and unless the banks know something we don’t (i.e. the Gov. is insolvent and bankrupt) you would assume they would consider normal income, but they don’t! Hence pay a higher deposit).

3. Wraps allow people who can’t get the required deposit to buy a property. Banks still require 2yrs. worth of tax returns if you want to get more than an 80% lend. For young people it can be a big struggle to save the required deposit. Wraps alleviate that problem.

(For example I know someone who whos biz was going gang busters and in 13 months accumulated 10% deposit, but could he get finance? No. He has 30 clients in Syd, and he wants to live near his office but can he? No. But with a wrapper he could).

4. Over the last few years most people who have wrapped have been much better off than if they had not of bought. Now I’m not going to say that is simply because of wrappers, but with property increasing in value these people have a real chance to create some equity and be further ahead than they ever dreamed of.

(I have been told by a couple who bought through a wrap, did the property up (a huge amount of sweat equity) and refinanced it in less than 5 months with one of the big 4 banks – the lady told me that her wrappes were the fastest cash outs in Aust!).

5. Most have a default rate of less than 10% (that includes everything – i.e. some people simply diappear (the same lady wrapper told me that she had some tennants who bolted and left her with a house with $50k worth of equity! And they had paid her in advanced. She spent 4 months searching for them but to no avail…).

I have the real default rate (of people who couldn’t afford to pay) is around 2% to 5% of the total properties. To me (and to many international banks) that is a very low default rate (I read Japan has a non-performing loan rate of between 15%-30%).

6. And finally it gives people a chance to own their own home rather than being in the rental cycle for the whole lives. High home ownership rates leads to less crime, higher school retention rates and gives family somewhere permanent to live, which usually leads to better social outcomes.

So wraps in my book are pretty good things. In my opinion legislation could be bought to bear and shut down the real rouges of the industry, while making it better and easier for the huge majority of wrappers that are actually making a positive differance to peoples lives.

Regards,
FFComm