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18-08-2018, 04:35 PM
#11121
Ask your self which other,if any, Australian or NZ bank could survive a fall in property values of 40%.?
Last edited by percy; 18-08-2018 at 04:37 PM.
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18-08-2018, 04:47 PM
#11122
Another question to ask. When was the last time average real (inflation adjusted) real estate prices fell 40% over a period of a few years ?
During the GFC NO. During the tech wreck of 2000-2001 NO. 1987 sharemarket crisis NO. Great depression of 1929 to 1936 is probably the answer.
Last edited by Beagle; 18-08-2018 at 04:51 PM.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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18-08-2018, 05:30 PM
#11123
Originally Posted by Beagle
Another question to ask. When was the last time average real (inflation adjusted) real estate prices fell 40% over a period of a few years ?
During the GFC NO. During the tech wreck of 2000-2001 NO. 1987 sharemarket crisis NO. Great depression of 1929 to 1936 is probably the answer.
Pity you posted that.
I was so looking forward to all of Snoopy's "FAIL TESTS."...…….lol.
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18-08-2018, 09:42 PM
#11124
Originally Posted by percy
All of HBL's huge Australian growth is being constrained by The Reserve Bank of NZ capital requirements.
That's true. The key to maximising any bank's 'cash backing resources' means looking for 'loan business' which has an 'Average Risk Weighting' with a low a rating as possible. Why? Because a loan with a low percentage risk weighting will require less bank capital to back it up. And that means any bank capital so freed up can be used for other new loans, thus maximising the size of the bank's loan book.
So what are the three classes of loans that will provide the biggest 'bang for capital' (lowest average risk rating) (excluding regular mortgages which Heartland are leaving to the big banks)?
According to note 26 in the Financial Report for FY2017 these are.
1/ Non Property Investment Mortgage Loan ( <80% LVR): 35%
2/ Non Property Investment Mortgage Loan ( 90%> >80% LVR): 50%
3/ Reverse Residential Mortgages ( <60% LVR ): 50%
So the best way to maximise the 'bang for buck' of a residential reverse mortgage business is to incorporate it within the Heartland bank structure as it is right now! So why are Heartland looking to change their structure again?
So HBL's capital will support higher growth in HBL's RELs, and other Australian growth area, such as "open for" products, which should mean a higher EPS and ROE..
Australian bank lenders are also subject to Basel 3 requirements, the very same requirements that the Reserve Bank of NZ is required to satisfy as a basis for the RBNZ rules. So how is having a new Heartland Australian based entity lending on Australian reverse mortgages going to help Heartland again?
SNOOPY
Last edited by Snoopy; 18-08-2018 at 10:00 PM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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19-08-2018, 07:18 AM
#11125
Originally Posted by Marilyn Munroe
An interesting article about reverse mortgages and some of the risks to a lenders balance sheet appears on the interest.co.nz site which is based on an item in the Financial Times.
It focuses on the dangers of a no negative equity guarantee (NNEG). This applies where the outstanding balance of the reverse mortgage is greater than the proceeds of a sale. This can arise if the mortgagee has greeter longevity than provided for at the beginning or the price of houses goes down. The articles pose the question; are lenders provisioning enough capital against the risks in this type of lending?
If their is no NNEG and the proceeds of sale are less than the outstanding balance the mortgagee or the executor of the estate will have to have to put cash on the table to clear the mortgage debt. You can imagine the reaction of these people when asked to stump up cash.
If there is a NNEG and the proceeds of sale are less than the outstanding balance the lender eats the shortfall.
A cure for cancer and alzheimers plus a ban on foreign house buyers are not beyond the bounds of reason. It would be a shame if Jeff has to go around machine gunning his reverse mortgagees to maintain solvency.
https://www.interest.co.nz/opinion/9...ebt-piled-your
https://www.ft.com/content/ddce25d0-...a-eeb7a9ce36e4
Boop boop de do
Marilyn
You make a good point that reverse mortgages might be in demand for health reasons.
We have so many advances and an ageing population.There are already thousands of elderly who are not getting the drugs/surgery that will enable them to live a better quality of life for longer
I dont believe DHB/ministry of health give much priority to funding expensive drugs or surgery for the elderly so maybe more will need a small reverse mortgage for sudden unforseen health expenses
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19-08-2018, 08:01 AM
#11126
Originally Posted by Snoopy
Australian bank lenders are also subject to Basel 3 requirements, the very same requirements that the Reserve Bank of NZ is required to satisfy as a basis for the RBNZ rules. So how is having a new Heartland Australian based entity lending on Australian reverse mortgages going to help Heartland again?
SNOOPY
The answers will be known soon enough as the group structure is expected to be in place in November.
The new structure shows their Australian activities will not be as a bank.
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19-08-2018, 08:56 AM
#11127
Originally Posted by percy
The answers will be known soon enough as the group structure is expected to be in place in November.
The new structure shows their Australian activities will not be as a bank.
So the whole entity won’t be as ‘safe as a bank’
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
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19-08-2018, 09:00 AM
#11128
Originally Posted by winner69
So the whole entity won’t be as ‘safe as a bank’
Exactly...………………………..
Its going to be interesting.
With more secure lending,ie fewer big loans,better quality motor vehicle lending,and huge growth in REL lending, it will be interesting to see what affect there will be on the overall equity ratio,eps,roe and dividends,and whether Heartland Group's cost of funding will remain compareable to the major banks. .
Going to be difficult to find any businesses to compare Heartland Group to.
Even Heartland Bank NZ will be a lot different to other banks ,because of their REL and motor vehicle,rural etc lending,compared to the major banks' focus on mortgage lending.
Last edited by percy; 19-08-2018 at 09:14 AM.
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19-08-2018, 09:08 AM
#11129
Junior Member
Originally Posted by percy
The answers will be known soon enough as the group structure is expected to be in place in November.
The new structure shows their Australian activities will not be as a bank.
I would imagine that the new structure is designed to have the NZ-based entity operating as the registered deposit-taking bank and the Australian-based entity operating as a non-deposit taking lender.
But let's hear that confirmed from HBL!
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19-08-2018, 10:45 AM
#11130
Member
Originally Posted by Beagle
Another question to ask. When was the last time average real (inflation adjusted) real estate prices fell 40% over a period of a few years ?
During the GFC NO. During the tech wreck of 2000-2001 NO. 1987 sharemarket crisis NO. Great depression of 1929 to 1936 is probably the answer.
Inflation adjusted resdential prices dropped 40% between 1974 and 1980.
Farm prices 60% between 1982 and 1989
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