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  1. #11821
    Gnawing on Bones Beagle's Avatar
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    Default Australia's house price bloodbath

    https://www.oneroof.co.nz/news/35810

    What's not in dispute is this is the worst house price bloodbath for decades. Provided it doesn't go much lower and stay low for a very long time HGH should be okay with the vast majority of their lending.
    No butts, hold no mutts, (unless they're the furry variety).

  2. #11822
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    I am continuing to Buy HGH . The point being missed is that the Reserve bank proposed rules are over 5 years , give a level plasying field to the NZ banks at last on risk, and will result in AU banks doing asset sales in NZ. If you read what Cullen has to say about the AU banks in GFC you will agree with the reserve banks positions. I think HGH is cheap. Have a million shares roughly.

  3. #11823
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    Quote Originally Posted by Beagle View Post
    https://www.oneroof.co.nz/news/35810

    What's not in dispute is this is the worst house price bloodbath for decades. Provided it doesn't go much lower and stay low for a very long time HGH should be okay with the vast majority of their lending.
    Thanks for the link.
    Interesting to see Tasmanian prices are still rising.
    My brother, who lives in Hobart told me his house has increased a great deal in the past couple of years.
    Was not that many years ago,maybe 5 or 6, when you could not sell your house in Hobart.
    I expect the big Australian Banks look as though they may have a very big problem on their hands.
    I seem to remember warning of this ,on this thread and ANZ Bank thread ,a couple or three of years ago.
    Last edited by percy; 06-01-2019 at 04:05 PM.

  4. #11824
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    Another article I was reading has the Sydney house price average rate of decline accelerating most recently with a drop in the December 2018 average sale price of 1.3%, (annual rate of decline 15.6%). Down 9% already so just another 9 months of monthly declines at that rate and recent buyers putting in a 20% deposit will be in a negative equity position. I reckon some of those "real banks" could find themselves in an interesting situation with some of their customers in 2020.
    Last edited by Beagle; 06-01-2019 at 04:25 PM.
    No butts, hold no mutts, (unless they're the furry variety).

  5. #11825
    percy
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    Add to the mix cultural,funding,capital ratios,excessive executive pay,and branch closures, I think the Aussie banks will have a busy "interesting " year or two.What a bugger..!!..lol.
    Last edited by percy; 06-01-2019 at 04:40 PM.

  6. #11826
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    If these ‘real banks’ start getting into strife or even go broke I would hazard a guess that Heartland activities will be affected in some way.

    In these circumstances one thing for sure it’s share price will go down
    “I know that I am intelligent, because I know that I know nothing “ — Socrates

  7. #11827
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    Quote Originally Posted by winner69 View Post
    If these ‘real banks’ start getting into strife or even go broke I would hazard a guess that Heartland activities will be affected in some way.

    In these circumstances one thing for sure it’s share price will go down
    HGH's share price has already been affected by association.
    I see the 'real banks' adapting to changing circumstances,as they always have done so..
    I remember 1990, or there abouts, when commercial real estate looked to just about break the Aussie Banks.Kerry Packer's "threat" to take over Westpac was the low point.Was it $2 per share or $3.00?.The rest is all history as they say.

  8. #11828
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    Quote Originally Posted by percy View Post
    Add to the mix cultural,funding,capital ratios,excessive executive pay,and branch closures, I think the Aussie banks will have a busy "interesting " year or two.What a bugger..!!..lol.
    Bet ya the boards of those Aussie banks are "absolutely thrilled" about the prospect of having to potentially meet 14% capital ratio's for their N.Z. operations lol.
    All HGH has to do is continue is DRP program and they're sweet
    No butts, hold no mutts, (unless they're the furry variety).

  9. #11829
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    Quote Originally Posted by Snoopy View Post
    Heartland management has been quite clever at pandering to the dividend hounds. Probably there are several holders of Heartland today who would not invest in Heartland if there was no dividend on offer, Some of the generous dividend is reclaimed immediately via the DRP. The rest is taken back later (not necessarily from the same individuals it was paid to) via share cash issues and bond issues. The net effect is that in the six years ended June 30th 2018, Heartland has paid out a net nothing. Yes the underlying business base has grown over that time, even if no net cash has been generated. Does this matter? As long as there are confident funding stakeholders willing to put up more cash, the Heartland business will continue to grow, But as soon as Heartland loses the confidence of its funding stakeholders, the cash needed to expand the business will dry up and growth will stop. And we all know what would happen to the share price if that were to happen. This is the primary reason I don't invest in Heartland. A great business will generate lots of cash. Heartland (still) generates none.
    I wrote the above last September. Could it be that what I suggested above in bold above has now come to pass?

    Quote Originally Posted by Beagle View Post
    Bet ya the boards of those Aussie banks are "absolutely thrilled" about the prospect of having to potentially meet 14% capital ratio's for their N.Z. operations lol.
    All HGH has to do is continue is DRP program and they're sweet
    So you are effectively asking Heartland to raise yet more capital by continuing to funnel more dividend money into reinvestment in Heartland bank, even though the net payout to shareholders (disregarding the additional money raised in bonds) over the last six years is already zero?

    I wonder, given the market turmoil, whether there are enough institutional investors still willing to fund a wholesale HGH bond in Australia to fund Australian reverse mortgages? At a no/low growth PE for HGH of around 10, maybe Mr Market is telling us that there aren't?

    SNOOPY
    Last edited by Snoopy; 06-01-2019 at 09:56 PM.
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  10. #11830
    percy
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    Your post is factually incorrect.
    HGH have already secured wholesale funding for their Australian RELs.
    Existing DRP take up was what was referred to.[over 5 years].
    And what is not yet clear what equity ratio HGH will have.
    HGH is capable of meeting Heartland Bank's required equity today,yet it has 5 years to do so.
    Remember HGH is not a bank,however it owns a bank,and at this stage it is the bank the Reserve Bank regulates.
    With the restructure HBL repaid their Australian bond issue.At this stage there has been no announcement about a replacement issue,or the size of of it.
    Last edited by percy; 07-01-2019 at 06:58 AM.

  11. #11831
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    Quote Originally Posted by percy View Post
    Your post is factually incorrect. HGH have already secured wholesale funding for their Australian RELs.
    <snip>
    With the restructure HBL repaid their Australian bond issue.At this stage there has been no announcement about a replacement issue,or the size of of it.
    HBL and now HGH have wholesale funding through the CBA in Australia - that is true. And this is tied into the REL mortgage portfolio in Australia. This isn't what I meant to refer to though. That funding is more than sufficient for now to sustain the REL portfolio in Australia - as proved by the fact that the HBL wholesale funding bond was repaid without consequence to the Australian REL business.

    Yet as part of the HGH restructure, HGH, outside of the HBL, are planning some more wholesale bond issues in Australia to fund future REL growth in Australia. As you have pointed out Percy, the building blocks for this are not yet in place. I don't think it is a 'given' that just because the Australian bond issue rolled out by the bank HBL last year (the one that has now been repaid) was a success, that those same institutions will roll up again to buy bonds from non-bank HGH with a very different outlook for the OZ property market one year on.

    Yes I do know that the percentage loaned on an REL property is on average much lower than that on a conventional mortgage. So -in theory- REL loans should be the least affected by falling property prices in Australia of all mortgages. But if securitised funding for housing becomes less popular overall, this could rub off on the REL business as well. CBA pulling out of new reverse mortgage funding on their own account is one reflection of this.

    SNOOPY
    Last edited by Snoopy; 07-01-2019 at 07:38 AM.
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  12. #11832
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    Quote Originally Posted by Snoopy View Post
    HBL and now HGH have wholesale funding through the CBA in Australia - that is true. And this is tied into the REL mortgage portfolio in Australia. This isn't what I meant to refer to though. That funding is more than sufficient for now to sustain the REL portfolio in Australia - as proved by the fact that the HBL wholesale funding bond was repaid without consequence to the Australian REL business.

    Yet as part of the HGH restructure, HGH, outside of the HBL, are planning some more wholesale bond issues in Australia to fund future REL growth in Australia. As you have pointed out Percy, the building blocks for this are not yet in place. I don't think it is a 'given' that just because the Australian bond issue rolled out by the bank HBL last year (the one that has now been repaid) was a success, that those same institutions will roll up again to buy bonds from non-bank HGH with a very different outlook for the OZ property market one year on.

    Yes I do know that the percentage loaned on an REL property is on average much lower than that on a conventional mortgage. So -in theory- REL loans should be the least affected by falling property prices in Australia of all mortgages. But if securitised funding for housing becomes less popular overall, this could rub off on the REL business as well. CBA pulling out of new reverse mortgage funding on their own account is one reflection of this.

    SNOOPY
    I think you have answered your own questions.
    Tighter overall lending by Australian Banks with work in HGH's RELs favour.

  13. #11833
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    Quote Originally Posted by percy View Post
    I think you have answered your own questions.
    Tighter overall lending by Australian Banks with work in HGH's RELs favour.
    Not saying you are wrong. But the counter argument to this is that the OZ government, by introducing their own REL scheme to top up pensions, have creamed off the respectable end of the business. The REL business that is left is 'greedy' baby boomers taking out lump sums for luxuries and denying their poor children their rightful inheritance. Those poor children were quite happy to see Mum and Dad splash out on a new car and a world trip when that draw down was covered by the capital gain on their parents' property. IOW the capital they were expecting to inherit was largely unaffected. But now with house prices falling by $50,000 per year and the REL loan money gone on top of that, the attitude of those 'poor children' may have changed. And Mum and Dad will listen to them. And it isn't clear that wholesale funders will want to anger these 'poor children' by funding the destruction of equity in the parent's homes.

    SNOOPY
    Last edited by Snoopy; 07-01-2019 at 08:03 AM.
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  14. #11834
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    Quote Originally Posted by boysy View Post
    The difference being those high lvr loans are P&I with people who have jobs. If they fail to pay the mortgage you can move in sell up so even if the LVR is 80% the bank can still walk away without loss.

    Quite different than interest capitalising loans where you cannot realise anything until the oldies Kark it.To call these loans lower risk is simply ignoring the different risk each type of borrower poses.
    I recently assisted friends parents getting a REL from Heartland. I believe they are typical REL borrowers, mid-late 70s and needed money for small renovations and a new car.
    Heartland sent out very good documentation to explain the risks and details of the loans.
    In their case, if house prices do not rise at all over the next 20 years, interest rates stay at 7.5% and both of this old couple live beyond 104 years old, Heartland will suffer as the equity would be gone in the house. However, if house prices average 2.5% increase over that time, the equity would pretty much stay unchanged (slightly deteriorate).

    The average age of a Heartland's new REL customer is 73 on last numbers I saw, average new loan size is $45k and the medium loan term to date is just over 8 years.

    Below are Heartland's rules for LVR
    Age of youngest borrower Maximum % of home loan's value available
    65 20%
    70 25%
    75 30%
    80 35%
    85 40%

    I remain steadfast in my view that these loans are low risk for HGH.

  15. #11835
    percy
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    Quote Originally Posted by Snoopy View Post
    Not saying you are wrong. But the counter argument to this is that the OZ government, by introducing their own REL scheme to top up pensions, have creamed off the respectable end of the business. The REL business that is left is 'greedy' baby boomers taking out lump sums for luxuries and denying their poor children their rightful inheritance. Those poor children were quite happy to see Mum and Dad splash out on a new car and a world trip when that draw down was covered by the capital gain on their parents' property. IOW the capital they were expecting to inherit was largely unaffected. But now with house prices falling by $50,000 per year and the REL loan money gone on top of that, the attitude of those 'poor children' may have changed. And Mum and Dad will listen to them. And it isn't clear that wholesale funders will want to anger these 'poor children' by funding the destruction of equity in the parent's homes.

    SNOOPY
    As expected the Australian Govt move to approve RELs have given the sector more "approval",or "respectability".The best advertising HGH could get.

    The Australian Govt restricts their lending to pension "top ups".

    "Greedy" baby boomers?.You forget it is their money to do with it whatever they want to do.
    I think this arguement has already been flogged to death on this thread.
    Last edited by percy; 07-01-2019 at 08:36 AM.

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