No cash return but the interest will be accruing at a rate higher than normal mortgage costs.
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so the HER portion of the business could be years away from recieving any money let alone make a profit...to me it just doesnt add up....throw in the peer to peer lending platform that will be slow to gain traction and heartlands profit may become a bit stagnant......i think they should stick to the consumer finance business,,,,....
Taking Stock 23 April 2015 - Chris Lee
THE Heartland Bank executive Andrew Ford is no greenhorn, having had at least a decade in executive positions at Heartland and its predecessor, Marac Finance.
At Marac he was one of several senior executives who was let down by the company’s weak leader Brian Jolliffe and by what proved to be a two-tier board of directors, with one tier proving to be inept as well as weak.
Ford was part of the transition team that converted Marac into a successful focused small bank, well led by Jeff Greenslade, and today Ford has some responsibility for Heartland’s move into Home Equity Release Loans, or reverse mortgages as these loans used to be called.
Ford was quoted at the weekend as having been moved by the heartfelt correspondence Heartland has received from senior citizens who have taken out these loans to enable them to maintain their living standards, and stay in their houses, rather than be short of cash and forced to move.
It is easy to believe that the borrowers would record their gratitude for the spending money they have accessed at a time when housing price rises are leading to higher-valued estates but also leading to higher rates and insurances for the home-owners.
One of the Sunday papers sought last week to emphasise the interest rate cost of these home equity loans, now more than 8%, and expressed concern that a borrower might end up ‘’eating his house’’.
Indeed if Heartland lent $100,000 to a 60-year-old taking a mortgage over an $800,000 house, when the owner was 84 years old the house would be fully mortgaged, if the interest rate averaged 9% and the house price rise over the 24 years was nil.
Quite rightly the Reserve Bank would be frightened for Heartland’s future if it made such a loan, and would force Heartland to provide more capital to recognise a higher risk-weighting of these loans.
Of course the example and assumptions quoted – 60 year olds borrowing $100,000 for 24 years, no house price rises, interest rate 9% - are all chosen to produce a ridiculous outcome.
Home equity release loans are currently priced nearer 8%, borrowers begin their loans at ages nearer 75 than 60, the maximum amount to be lent is calculated with common sense, and lenders have discovered the average term of such a loan is eight years not 24.
The newspaper item was prepared on false assumptions, presumably to achieve a ‘’newsworthy’’ angle.
Andrew Ford will have been exactly right when he noted how much these loans have helped some people.
The loans are not intended to meet the needs of everyone.
Many retired people enjoy moving to smaller homes with smaller gardens, some enjoy moving to retirement villages, some have sufficient money to stay put and employ a gardener and a few choose to enter into home equity release loans. The equity in one’s home is available to be used as the owner sees fit.
My guess is that over the next 20 years, people will live longer and have better health, and dare I say it, governments will struggle to finance an ageing population’s expectations of living standards and healthcare.
In this environment, home equity release loans may become much better understood, and more regularly used.
One hopes that Sunday papers will eventually discover that banks and retired people rarely enter into stupid arrangements.
Hey Percy - that a brilliant piece you wrote for Taking Stock this week. Congratulations
You sorted the buggers out eh mate .....stupid media.
I reckon that ad on TV will do wonders and there will be really strong growth starting to come through this year ......might need to readjust my forecast UP
Baabaa - have a look at the Scales thread ...... Chris Lee and Percy rumoured to be one and the same
Well Winner, I wondered if that was what you were saying, but better that you said it, than me, so thanks for that insight. Not sure how I would know really, whether a kindly well travelled bookseller generously sharing his views might be THE Mr Lee author of Taking Stock, or perhaps his equally insightful sidekicks, all of which I enjoy reading, as many do I suspect. The reports do seem insightful though and uncannily in tune with opinion, much of which is often shared here first.
Hells Bells ,I think I have read too many of Chris Lee's articles!!! I am starting to think like him.!!! lol.
I do appreciate he has a better way of expressing himself than I do,The Heartland REL article was very well written,and gave a very good rounded view of RELs.
Roger thank you for posting it.
It looks as though HNZ could be starting its march upward (hope I havn't jinxed it) broken upward on the daily and weekly charts through the down channels. Just bought back in so lets see.
Wish I knew how to post both those charts.
Top lawyer calls for more Asians on boards
http://www.stuff.co.nz/business/6804...ians-on-boards
Heartland Bank / Limited ............another fail
I fear the middle aged white male board with the notional female is just part of the Heartland culture
Nonetheless some interesting insights from Mai n that article. Like "It will be a challenge to work in a sector which is subject to so much disruption and fast-paced change. The challenge of demographic disruption is as important as technological disruption, especially in a super-diverse market like Auckland.
Mai Chen is a very smart women there's no question about that but directors should be appointed solely based on merit and nothing else (including her call for more ethnic diversity).
I completely agree about selecting people based solely on merit, but in her defence, she is specifying skills that asians can bring and reasons why they would be good for the business (e.g. "cultural intelligence and language skills", "businesses generally needed to have the ability to transcend borders because of growing urbanisation and globalisation").
So unlike in some cases where diversity is called for for the sake of diversity, here she's saying why it's good for business.