Moved to Newbies
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Moved to Newbies
Thinking about the interest rates Snoopy, if rates go up and HGH needs to pay more for their funds would't they simply charge more interest on the reverse morgages?
The way I see it that the risk of short term funding and longer term reverse morgages is greatly reduced because of the possibility of adjustments of intetest rates of the reverse morgages.
It would be a concerne if no funding was available some time in the future but I think that is unlikely.
Yes Forest, that is how I see it too. You just pass on your increased costs, and there is not much existing reverse mortgage holders can do about that. I was trying to look one step ahead of that and consider what would happen next, and also look around to see what might cause these changes:
Q1/ Why would a lender want to increase their interest rate return?
A1/ Because they perceive an increased security risk on their loan.
Q2/ Why would the loan security be reducing?
A2/ Because house prices are no longer going up, and may be falling slightly.
Q3/ If house prices are not going up what will that do to the demand for REL loans?
A3/ Existing reverse mortgage holders may pull out all stops to repay their loan early, and growth in new REL loans may slow because the loan holders equity base will erode much more quickly.
A3 is a pretty bad result for Heartland Australia.
I am not saying that having reduced funding available is likely. I am saying it is a possibility and so should be planned for as a contingency. Some would say if something is not likely then you should not worry about it. I would say that even if something is not likely, and in the unlikely event of something happening the contingency is severe, the you should very much worry about it. Jeff is onto the problem so let''s see what he can do to fix it. In the meantime as an investor, you should discount your HGH buy price to reflect the unlikely but serious consequence that shareholders will face if Jeff is unsuccessful in sorting this out.Quote:
It would be a concern if no funding was available some time in the future but I think that is unlikely.
SNOOPY
This presentation Percy?
http://nzx-prod-s7fsd7f98s.s3-websit...018/290747.pdf
This is a very good summary of how the loans work from a consumer perspective. However I did raise an eyebrow when I saw the case of Jack and Bev (p30) who used part of their reverse mortgage to 'pay off another mortgage'. Did someone at Heartland not tell them that a reverse mortgage interest rate is higher than a regular mortgage? Surely they would have been better off just paying off the small remaining mortgage, then taking out a much smaller reverse mortgage capital sum for their own lifestyle benefit? Perhaps cashflow was an issue with those residual mortgage payments? But if they wanted more regular cashflow they could plug into the state government reverse mortgage scheme at a better rate that Heartland could offer. What were those Heartland advisors thinking? Very poor advice given to this poster couple Jack and Bev by the look of it!
None of those pages you referenced Percy talks about the funding the reverse mortgage portfolio by Heartland Australia. For that you had to go on to page 42. The future funding strategy is listed as follows:
"1/ Continue to develop multiple warehouse facilities,"
Job done. Heartland have broadened their Securitization program beyond just CBA Bank to include Westpac and ME bank.
2/ "Potential A$ Medium Term Note programme (senior unsecured) utilising Heartland Australia Group’s BBB-rating (Fitch)."
Job partly done. Following on from as issue of $A50m in subordinated notes in March 2019 (two year term) , Heartland announced the day after the AGM (November 2019) that they have completed a senior unsecured bond placement of A$100 million with a key Australian institutional fixed income investor. In both cases these are medium term investments only, so the timing mismatch is not fixed. More $A bonds to come?
3/ "Broadening providers of senior funding and introducing mezzanine investors •Potential rated Reverse Mortgage Backed Note programme•
Job NOT done (although Jeff is on to it).
The presentation does show that the average term for an Australian Reverse Mortgage is 6.6 years (p25, slightly less than I thought). But it does not resolve any of my concerns about the funding mismatch at Heartland Australia. Nevertheless Jeff is on the job to fix things, so I have in no way given up hope.
SNOOPY
Good, just leave him to do his job. The glass is half full mate and all equities involve risk.
Yes they do and the price you pay should reflect that risk. Heartland is my newest NZX investment. I bought an initial stake in January 2019 and have participated in two DRPs since. My average acquisition price is $1.39. My fair value estimate of the worth of each HGH share is $1.63. I am quite happy to sit in my current position
Technically I should add a couple of cents to that as we are half way to earning that upcoming interim dividend, which I am guessing will be 4c. So if I could accumulate some more shares at $1.63 to $1.65 I would be in. But I won't be in at $1.87. That doesn't mean that HGH won't be worth $1.87 one day. But, to me, that price does not reflect the risk inherent in HGH today. I am not a seller at $1.87- all share investments should be given room to breathe with the market- , but I am definitely not a buyer. YMMV and it obviously does. Good luck Beagle.
SNOOPY
Good buying Snoopy. I managed to get a small top up at $1.32 about a year ago and some more at under $1.50 but I have no idea what my average price is as its a complicated mess of shares transferred over from the former Heartland Bank, DRP shares acquired over the years and sales when the share price really did get overpriced a few years ago as well as my latest top up at $1.85.
There's been a few people mentioning they are hoping for a dividend increase this year but I think with the new more stringent RBNZ capital requirements and taking into account last year's dividend increase I think that's unlikely this year and I'm quite relaxed about that.