I enjoy your humour and conviction Alokdhir - both good qualities in this game.
Probably will regret this...but here is something that could unnerve a few folks...
Heartland carry zero/nil/zilch provision for their reverse mortgage book.
For their non reverse mortgage book, they have $4.198bn is gross receivables, and a closing provision of $52m, or about 1.2% of gross receivables. That number has reduced from 2% across FY19/FY20 when they were doing lots of peer to peer lending, but made some step changes down in FY21 and FY22 as p2p went into run off. Under accounting rules, they are required to book a closing provision for all future expected credit losses, even if they originated the loan on the very last business day of the year, or if those losses could actually spread numerous years.
Reverse mortgages are not required to be specifically provided for, and given their nature are held at face value (deemed fair value).
Reverse mortgage lending is not available for anyone below 60 years of age. The vast majority of lending is drip fed as and when needed, rather than a big up front lump sum, as interest is not paid in cash, but rather capitalised (added) to the existing balance, which then compounds again. The LVRs are very low and linked to the age of the borrower. Interest rates are variable and can rise or fall with movements in wholesale costs.
This is interesting and important reading for the characteristics of RM lending:
https://www.heartland.co.nz/Uploads/...ct-sheet.pdf?3
But if someone borrowed at 60 and wound up living to like 100, and there was a housing crash and no recovery, coupled with sustained high interest rates, not inconceivable there could eventually be some provision introduced
To put some context around it, though...say that unfolded in FY22...and a provision of 0.3% (25% of provision for other receivables) was applied to reverse mortgages. That would see a change in provision of 0 to 6.183m, and thread through the P&L, and after tax impact of 4.4m.
Heartland had $13.8m of impairment expenses in FY22, consisting of $16.7m in incurred credit losses, a positive movement in ECL provision of +1.2m, and acquired $1.2m of provisions as part of stockco.
Jarden for FY23 are forecasting $30m of impairment expenses (probably mostly due to increased provisions rather than incurred credit losses but they dont break it out), $104m NPAT (up from 96m in FY22), and EPS of 15.2c (down a cent from FY22).
That gives me quite a bit of comfort in terms of the credit risk in this year. May be a touch conservative for FY23, FY24 about bang on, and FY25 they are probably a bit optimistic. The thing with recessions and banks, is the underlying credit quality lasts a bit longer than you'd think at the beginning of a interest rate hiking cycle as people have so many other things to turn off before they start defaulting on loans. But that just pushes out the inventible a bit longer, and delays the recovery.