HGH - Heartland Group Holdings

**iceman** · 02-07-2019, 03:51 PM

Originally Posted by ziggy415

The full available figure is reported as $850 million but with only 18000 policies over 15 years that seems a rather large amount, unless your going to buy a ready made portfolio from someone else who decided not to offer that type of product anymore

Not sure how relevant the last 15 years numbers are. In the last couple of years 3 of the major competitors in Aussie have withdrawn from the REL business leaving Heartland as a major player. They have been growing this business in Australia by over 20% p.a. recently and are now starting a big advertising campaign to increase awareness even further and are well funded to to write more mortgages. Additionally, the Australian Government has made clear they see reverse mortgages as part of the future to deal with large numbers of people in retirement.
We are well positioned :-)

**peat** · 02-07-2019, 04:44 PM

Originally Posted by iceman

Not sure how relevant the last 15 years numbers are. In the last couple of years 3 of the major competitors in Aussie have withdrawn from the REL business leaving Heartland as a major player. They have been growing this business in Australia by over 20% p.a. recently and are now starting a big advertising campaign to increase awareness even further and are well funded to to write more mortgages. Additionally, the Australian Government has made clear they see reverse mortgages as part of the future to deal with large numbers of people in retirement.
We are well positioned :-)

with the property market having done so well in the medium term with so many aging owners rich with cashless equity this is going to be a fantastic option for lots of people. I agree this is a real gift on a platter for Heartland. Yes there will be paperwork challenges and regulatory diligence needing to be well attended to.
I recall Snoopy saying this was a cashflow negative operation and at the end of the day cash flow was all that mattered but there must be good money to be made from usury at these higher rates (it seems that the market accepts higher rates than first mortgages even though the risk is actually a lot less due to very low LVR's involved).
I am not super keen on Heartland though but am really keen on a reverse mortgage business in Australia!

**percy** · 02-07-2019, 05:32 PM

Both you and Snoopy would better understand HGH's RELs should you read HGH's presentation of November 19th 2018.
Some simple points,when comparing to standard mortgages.
Shorter loan term length ,........Lessens risk.
Lower LVR............................Lessens risk.
Higher net margin...................More profitable.Better use of capital.

**dabsman** · 02-07-2019, 06:25 PM

Originally Posted by percy

Both you and Snoopy would better understand HGH's RELs should you read HGH's presentation of November 19th 2018.
Some simple points,when comparing to standard mortgages.
Shorter loan term length ,........Lessens risk.
Higher LVR............................Lessens risk.
Higher net margin...................More profitable.Better use of capital.

Lower LVR I think you mean mate. Yes credit is recycled much faster in REL scenarios

**percy** · 02-07-2019, 06:32 PM

Originally Posted by dabsman

Lower LVR I think you mean mate. Yes credit is recycled much faster in REL scenarios

Thank you.
I certainly got that wrong.!!!!
Have altered my post.

**iceman** · 02-07-2019, 08:36 PM

Yes Percy all good and accurate points but I think Peat and Snoopy make a fair point that these mortgages are capital intensive with no immediate repayments. But on the other hand, the term is very short (before the mortgage is FULLY repaid) and I think that is a fact many are overlooking. Having split this business from the bank in NZ, allowing them to diversify borrowing in the current low interest environment makes this a great business to be invested in.

**percy** · 02-07-2019, 09:15 PM

Originally Posted by iceman

Yes Percy all good and accurate points but I think Peat and Snoopy make a fair point that these mortgages are capital intensive with no immediate repayments. But on the other hand, the term is very short (before the mortgage is FULLY repaid) and I think that is a fact many are overlooking. Having split this business from the bank in NZ, allowing them to diversify borrowing in the current low interest environment makes this a great business to be invested in.

You are right to point out these mortgages are capital intensive.
I thought after I had posted I was wrong to brush Peat's concerns off.
Although the average term of RELs is around or under 10 years, compared with 20 to 30 year standard mortgages they are incuring deferred interest.ie the people taking them out do not pay interest on the amount borrowed until such time as the loan is repaid.Two things we must remember is HGH must pay the interest during the term on their borrowings from capital,or from other income.The other thing is HGH must not borrow short and lend long.I note on this announcement and previous announcements they stress they are sourcing longer term funding.
I will go back to the length of the loans again.The average loan is say 10 years,however some are longer term,but we know a great number are only for 3 or 4 years.This means HGH can recycle the repaid loan, together with accumulated interest very quickly,so the capital intensive lessens.
The huge growth HGH are achieving, will put some pressure on capital in the short term,however it has not hindered HGH capacity to increase funding.
This is because lenders see HGH's RELs as a very safe and profitable financial product,gaining in demand from the asset rich,cash poor older generation who want to enjoy their later years.