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  1. #11956
    percy
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    Quote Originally Posted by Balance View Post
    Agree with you but HGH should explain in simple terms how exposed they are to falling property prices - takes away any concerns.
    More than fully explained in HGH's 19th November "Heartland Investor Day Presentation."

  2. #11957
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    Quote Originally Posted by percy View Post
    More than fully explained in HGH's 19th November "Heartland Investor Day Presentation."
    http://nzx-prod-s7fsd7f98s.s3-websit...018/290747.pdf
    No butts, hold no mutts, (unless they're the furry variety).

  3. #11958
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    I read it and it's clear as mud - especially from pages 34 onwards.

  4. #11959
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    Quote Originally Posted by Balance View Post
    I read it and it's clear as mud - especially from pages 34 onwards.
    You're a bright guy mate. I am sure you can wrap your head around this and the risks. Let me frame it up another way. Its off the charts safer than lending unsecured through Harmoney for some overseas trip that some punters can't be bothered saving for or consolidating lots of other unsecured loans they have...
    No butts, hold no mutts, (unless they're the furry variety).

  5. #11960
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    Quote Originally Posted by Beagle View Post
    You're a bright guy mate. I am sure you can wrap your head around this and the risks. Let me frame it up another way. Its off the charts safer than lending unsecured through Harmoney for some overseas trip that some punters can't be bothered saving for or consolidating lots of other unsecured loans they have...
    Of course it is.

    That's why all the other players decided to get out of it and leave HGH to become the leading player!

    I recall CDOs were safe as houses too!

    HGH shareholder so I am just trying to point HGH management to answer the concerns simplistically - at what level of property value drops does HGH have to pump in more supporting capital on its balance sheet, and its securities need write-offs.

  6. #11961
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    The other banks have a far lower capitalisation rate.. Various future modeling scenario's outlined in that report give you a good idea of the risks. Have another go at reading it would be my suggestion.
    No butts, hold no mutts, (unless they're the furry variety).

  7. #11962
    percy
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    Quote Originally Posted by Balance View Post
    Of course it is.

    That's why all the other players decided to get out of it and leave HGH to become the leading player!

    I recall CDOs were safe as houses too!

    HGH shareholder so I am just trying to point HGH management to answer the concerns simplistically - at what level of property value drops does HGH have to pump in more supporting capital on its balance sheet, and its securities need write-offs.
    I have been told there are two major reasons for the other players to leave the market.
    1] They are not set up for a loan process that takes a month or more, and requires more than a few boxes to be ticked off.Consultations with family and their lawyer is too hard for them,and opens up too many opportunities for them to give poor advice.
    2] They are scared of backlash from "the family", when they find out their legacy has diminished because of compound interest charges.

    .
    Last edited by percy; 15-02-2019 at 02:15 PM.

  8. #11963
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    Quote Originally Posted by percy View Post
    I have been told there are two major reasons for the other players to leave the market.
    1] They are not set up for a loan process that takes a month or more, and requires more than a few boxes to be ticked off.Consultations with family and their lawyer is too hard for them,and opens up too many opportunities for them to give poor advice.
    2] They are scared of backlash from "the family", when they find out their legacy has diminished because of compound interest charges.
    Makes sense.

    Thanks, Percy!

  9. #11964
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    Default How much of an Oz property downturn could Heartland handle?

    Quote Originally Posted by Balance View Post
    HGH shareholder so I am just trying to point HGH management to answer the concerns simplistically - at what level of property value drops does HGH have to pump in more supporting capital on its balance sheet, and its securities need write-offs.
    Below was my answer to this question in the middle of 2018 Balance. Sorry I haven't adjusted the figures to reflect the last reported financial year. But the underlying argument is still valid.

    Quote Originally Posted by Snoopy View Post
    I have always found Heartland's disclosure compares favourably with what is disclosed by other banks.

    If you look in the Financial Report 2017, note 26 (Capital Adequacy), you will find the requirements of the Basel 3 standards that must be complied with, including what happens in times of 'economic stress'.

    In note 26c, the relative risks of the entire loan book, as estimated by 'relative risk rating' is there.

    Looking at the same table we can see that the reverse mortgages with an LVR <60% total $885.278m.

    So $885.278m/$922.748m = 96% of all the reverse mortgages on the books.

    That means that if every properties` underlying backing value dropped by 40%, then Heartland would still recover in full 96% of their reverse mortgage loans. Only the remaining 4% of loans would be wiped out (total $37.470m). With shareholder capital of $565.595m on the balance sheet, I don't think such a loss (a fairly extreme stressed scenario) would 'break the bank'.
    Quote Originally Posted by Snoopy View Post
    After further thought, my conclusion above may be oversimplifying things. What I have said above is true if all debts to Heartland remain static. But in general a reverse mortgage does not behave like that.

    If you take out a 'fixed reverse mortgage amount', then the interest keeps accumulating, even if the amount lent to the homeowner is static. So it is possible that some of those reverse mortgages with an LVR less than 60% will become LVRs greater than 60% with the passage of time as the interest bill accrues. But such an event is more liable to happen if the LVR at the time of a 'property crisis' is above 50% (say). And we don't know how many reverse mortgage loans fall into this category.

    Conversely if property values keep going up by enough, we could still have a situation where LVRs are reducing because the increase in property value more than cancels out the interest accruing on the loan.

    Things are never quite as simple as they might seem in the finance world. I don't see anything in Heartland's published FY2017 figures that would change my view that Heartland could survive a 40% drop in property prices and still emerge viable of the other side of such an event. The problem I suppose would be a 40% drop in house prices would likely be coupled with downturn in Heartland's other areas of business. So surviving a 40% fall in house prices while farmers and small business people also cut back on their lending simultaneously might not be so easy! Sorry to finish on a gloomy note!
    The risk is the part of the quote that I have highlighted in bold. The good thing in this scenario is that there may not be a good correlation between house prices in Sydney and rural lending in New Zealand (for example). The less correlation there is between the different areas of Heartland's loan book, the greater the property downturn in Australia that can be managed.

    SNOOPY
    Last edited by Snoopy; 15-02-2019 at 02:54 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  10. #11965
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    Quote Originally Posted by Snoopy View Post
    Below was my answer to this question in the middle of 2018 Balance.

    The risk is the part of the quote that I highlighted in bold.
    Thanks, Snoopy - easy to understand!

    My take is that there could be a real risk that these reverse mortgages could be problematic in years to come - combination of property prices falling over the next 5 years even while HGH's loans levels keep increasing with the compounding interest payments.

    * Property prices in Sydney & Melbourne have gone up 80% since 2011. The factors which led to the explosive price increases are either static (interest rates, wages growth) or declining (housing affordability, investors' appetite, banks' appetite to lend, speculative fund flows from Asia etc). I know of one recent sale in Sydney where the sale of a unit went through at 15.6% below CV - scary! In Auckland, I have been offered properties by desperate real estate agents at 15% below CV already in recent months.
    Last edited by Balance; 15-02-2019 at 03:13 PM.

  11. #11966
    percy
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    Hold off Balance until properties in Sydney sell 60%below CV,then you may catch some HGH want to move.!!
    Ring HGH today and tell them you are a BIG" buyer.They may take your number?
    You will have to be a cash buyer as the Australian Banks will not be able to lend,as they have gone bust.
    Remember Heartland Bank will be the last one standing.!!
    Last edited by percy; 15-02-2019 at 03:21 PM.

  12. #11967
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    Quote Originally Posted by percy View Post
    Hold off Balance until properties in Sydney sell 60%below CV,then you may catch some HGH want to move.!!
    Ring HGH today and tell them you are a BIG" buyer.They may take your number?
    You will have to be a cash buyer as the Australian Banks will not be able to lend,as they have gone bust.
    Remember Heartland Bank will be the last one standing.!!
    So maybe investing in shares in HGH is safer than depositing money with an Aussie owned bank.

  13. #11968
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    Quote Originally Posted by percy View Post
    Hold off Balance until properties in Sydney sell 60%below CV,then you may catch some HGH want to move.!!
    Ring HGH today and tell them you are a BIG" buyer.They may take your number?
    You will have to be a cash buyer as the Australian Banks will not be able to lend,as they have gone bust.
    Remember Heartland Bank will be the last one standing.!!
    Not necessarily - depends on where the properties mortgaged are situated?

    Remember that the Aussie banks have the implicit guarantee of their government over there. NZ made the mistake of no implicit guarantee and we lost all our banks to them - BNZ, Trust Bank, ASB, Countrywide, NZI etc and some were allowed to go broke - DFC for eg. Pathetic really.

    Bear in mind I am a holder, Percy so I am passing on my thoughts and feedbacks from what I gather. Put it this way - given market trend and China investors (speculators) offloading, I certainly WILL NOT be a residential property investor anytime soon!!!!

    And given HGH sp trend, I will not be adding to my holding either!
    Last edited by Balance; 15-02-2019 at 03:48 PM.

  14. #11969
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    i am adding. This is a sound company my reading of the RB policies are that they restore a balanced field in NZ for the local banks who are not saints. Looked at my credit card today 22% interest rates.??

  15. #11970
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    Not arguing against a govt g/- for depositors but it's stretching things a bit to include the Development Finance Co as a "bank". It was intended to finance ventures that were too risky for the banks - rather a govt sponsored venture capitalist, as I recall.

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