I love Jenman he has some good stuff and some god awful stuff.
Lets look at this.
Let's compare any of the major banks with wrappers.
First, a bank. If a home is worth $300,000 and the loan is $200,000, the borrowers have $100,000 in equity. If they default on the payments, the bank will sell the home and the equity is given to the borrowers. In this example, the borrowers receive $100,000. They get to keep the equity.
Now, let's look at a wrap loan. If the borrowers default, the wrap sharks snatch the equity and give the borrowers nothing. In the above example, it's the wrappers who receive the $100,000 in equity. That's the exact opposite to a bank.
I really love this.
Half the information.
Firstly the Wrappor comes to a deal with the Wrappee at time of contract for a predetermined sale price at a date in the future--usually 3 yrs.
This can be a 2 way street for BOTH parties.
Lets take the $200K home. Lets say the agreed price is $266K or a 10% Compounding GUARANTEED increase on the Wrappors $200k purchase with a guaranteed buyer.Sure he gets a premium on the property interest rate.The Wrappor has stamp duty to consider so his profit is eroded somewhat.
If in 3 yrs time the property has risen MORE than 10% Compounding a year then BOTH the wrappor AND the Wrappee have capital gain. Dont say it doesn't happen IT DOES and HAS.
The Wrappee knowing the home is to be his will try harder to keep it well maintained,will do everything he can to make his payments as he knows default will mean forfeiting everything. His opportunity will be lost.
So back to these nasty wrappors.
They are smart enough to protect themselves from default.
Banks insist on Mortgage insurance for loans over 80% LVR.
Nasty buggers.
This protects the banks if default and eviction and fire sale--- they can sell it at anything they want then the insurance company starts legal action against the poor mortgagor who THOUGHT his insurance covered HIM---what a joke!
The difference is that Mortgagors could not only default BUT have a very nasty bill on top.
Sub prime lendors are screaming like stuck pigs.WHY?
Wrappors take control,have their home and any equity--the wrappee walks away no more to pay.
Seems to me the Wrappors could teach the banks a thing or 2.
Infact they have!
You can now get a lower cost loan that the banks will lock in equity or part equity as a condition.
Its business for Christmas sake,both parties have risk,this one sided crap view is designed to stir up controversy and sell more of his books.
don't tell me Jenman hasn't a hidden agenda!
Haven't seen any reporters chasing Wrappors down streets but seen many reports on banks kicking out Mr and Mrs Average!