Wetpak 110% Home Loans.

[duncan macgregor]

Stuff said today that Westpak are offering 110% home loans to people with good jobs. Now is your chance if you are about to go bankrupt to get that extra 10% before you shoot through. What a great oportunity for the smart business man to take them to the cleaners. That bank is now off my list of safe havens, for my money during this downturn in the market. Macdunk

[Dr_Who]

Has Westpac not learnt anything from the subprime in the US? Very Sad.

[minimoke]

Madness. Presumably 100% loan goes on the house which is a relatively secure asset from which you can secure most of the debt. But what about the other 10% - where will that go. The holiday; car; flat screen TV. Stuff no doubt that will have no residual value once the money is spent. Surely if you have the income to pay a 110% loan you have the money to save a deposit.

[Dr_Who]

It is of a concern. What it immediately tells me is that the banks are flush with too much liquid cash and dont know what to do with it. All the mums and dads are putting their hard earned savings as cash in the bank as a safe haven.

[Steve]

I'm sure that they charge a low-equity fee, but should they charge a higher rate of interest for this increased risk?

[patsy]

Is this such a big deal?

A highly leveraged property "investor" is likely to end up with at least a 110% mortgage as soon as property prices decline - even without having been given a 110% mortgage initially. Even without any significant property decline, someone with a reasonable high mortgage may have effectively a 110% mortgage if we add up credit cards and bank overdraft facility to his/her entire debt calculation. So what's new?

[CJ]

I'm sure that they charge a low-equity fee, but should they charge a higher rate of interest for this increased risk?

I beleive the low equity fee pays for a default insurance policy. Therefore it is not the bank taking the risk but the insurance company. The borrower is still at risk as they either have to pay the bank or the insurance provider (ie. the insurance is for the bank, not for you!).

Malcolm - dont use capitals for your whole post - ok if you want to highlight one small part but not for the whole think - PLEASE.

[STRAT]

I understand the sentiment behind your reactions to this guys and girls but how is this any different to any other bank customer with a high percentage mortgage and a personal loan for a car or what ever? The only difference I see is the customer may be getting a better interest rate on the car

DISC I never borrow money to buy a car or a toy

[STRAT]

change to kiwi bank

Hell no. I still have nighmares about the service I got from Postbank the one time I had a mortgage with them :mad:.
As for their "Kiwis for Kiwis" advertising campaign, mark my words that BS will mean nothing in a few years when they sell out to, as they call em "one of the big banks"
Anyone remember the same BS coming out of ASB? ( now called ASB bank which I guess means Auckland Savings Bank Bank ) Then there was Trustbank. Same BS and not much to trust

[Halebop]

I beleive the low equity fee pays for a default insurance policy. Therefore it is not the bank taking the risk but the insurance company. The borrower is still at risk as they either have to pay the bank or the insurance provider (ie. the insurance is for the bank, not for you!).

You might want to check the fine print on the underwriter. Various forms of payment protection insurance - be it GAP, Mortgage Protection, Loan Protection, Credit Card Protection have been very profitable for an extended period. Banks have looked covetously at the margins earned by insurers and pulled this line of business in house. The insurance is very much for the bank both in terms of premium income and their own loan covenants. ASB do it via Sovereign, ANZ via ING, Westpac via Westpac Life. So as the consumer you take some form of payment protection insurance effectively underwritten by the company you borrowed from. The fraught entanglement this represents is mind boggling for both insurer and insured (and largely the reason why banks have restrictions placed on them by post depression era legislation about the quantum of insurance they can write - banks get around this using holding company structures rather than insuring directly).

The financial, reputational and moral risk involved is simply stupid but both consumers and bankers appear cut from similar dull coloured cloth. On this side of the Tasman even our commerce commission has been taking a closer look at these types of transactions. I'd expect some bad PR sooner rather than later.