@SNOOPY thanks for your thoughts ..... will continue to watch
4-Traders Low to High TP $1.48 - avg$1.57 - $1.70 ..........1-sell : 2-hold : 1-buy
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@SNOOPY thanks for your thoughts ..... will continue to watch
4-Traders Low to High TP $1.48 - avg$1.57 - $1.70 ..........1-sell : 2-hold : 1-buy
As far as I am concerned fair value for HGH, right here, right now, IS $1.75 being made up of the an underlying $1.725 + $0.025 of the next dividend (assume/hope 4c will be declared).
Obviously not buying more at current SP.
With me selling down 10% of my ARV recently HGH is once more currently my largest NZX holding.
I think your interpretation of what the RBNZ was commenting on is wrong Beagle.
The NZ Reserve Bank was criticising the ANZ in NZ as chaired by John Key. This is what I term "ANZ.NZ". The RBNZ was commenting on the capitalisation of the NZ branch of the ANZ Group, the whole group headquartered in Australia. That is the listed entity ANZ, and this is what you can buy on the ASX or NZX - shares in the whole group. Yes the Australians were grizzling about Adrian Orr's suggestion that ANZ,NZ was not well enough capitalised. But that was because they would have to supply the extra capital to bolster the balance sheet of their NZ arm. Adrian Orr said nothing about the capitalisation of the ANZ group as a whole. The Reserve Bank of New Zealand has no jurisdiction in Australia and it would be inappropriate of Adrian to comment on what the ANZ in Australia should do.
A similar argument in reverse applies to HGH shareholders who 'take some confidence' that the Reserve Bank of NZ is keeping a watching oversight over HGH. The Reserve Bank is keeping tabs on the NZ subsidiary Heartland Bank only. But as far as Heartland Australia is concerned, the Reserve Bank of NZ has washed their hands of it. Heartland Australia is not a bank so there is no oversight from the Reserve Bank of Australia either. Heartland Australia is an unregulated wild west operation that can more or less do what it likes.
What does this mean for those taking out reverse mortgages? The guarantee of lifetime occupation between a retiree to occupy their house indefinitely into retirement and Seniors Australia will operate until the death of one of the parties to that reverse mortgage contract. I am sure that all retirees sign this thinking it will last until their own death or their voluntary move from their house. But it could be 'Seniors Australia' that dies first, particularly now because it operates under the wild west umbrella of 'Heartland Australia', a grossly undercapitalised shell (under any recognised oversight, which of course they are exempt from complying with), that exists only at the behest of the HGH board. Where would these retirees be if HGH decides to cut Heartland Australia loose? I bet those retirees haven't thought about that!
SNOOPY
Why would they cut it loose seeing as its so profitable with high growth, low risk and a high NIM...(in case you are wondering Snoopy, that's a rhetorical question).
I know you don't want an answer Beagle but...
Heartland Australia needs wholesale funding to operate. Without supporting wholesale funders, either directly approached by Heartland Australia to take on Heartland Bonds or via bank securitrzation of loans, the Seniors Australia reverse mortgage business would find it very difficult to operate at all. So profitable or not, Heartland Australia can only operate at the behest of its wholesale funders. Wholesale funders will determine whether the Reverse Mortgage business still exists in three years time - not Heartland Australia. Jeff is working very hard now to make sure the wholesale funding does continue. But it is not a done deal,
Heartland's biggest wholesale funder is still CBA bank, a former provider of reverse mortgages themselves, until early 2019. Yet CBA have chosen to abandon this "profitable, high growth, low risk and a high NIM market" as you put it. Will they continue to support Heartland Australia into the future to carry on in this market they have themselves abandoned? I think Jeff will earn his pay cheque this year!
SNOOPY
From what I understand the Aussie Banks do like RELs,however compliance is an issue for them.They can arrange/approve a standard mortgage in 24 hours,however a REL takes a little over a month to be processed,with the applicant needing legal advice and usually family consultations.They see too many steps where they can make errors,[and be legally liable].Basically they are not set up for RELS.Just too difficult.Maybe branch networks work against them.?They do have a history of giving bad advice,as The Australian Banking Royal Commission proved.
HGH have spent time and effort making sure their process is right.This has been in consultation with both NZ and Australian regulators.HGH's process is so good it has been approved by Consumer in NZ,and needed little [if any] change to comply with Australian Royal Banking Commission requirements.
Excellent security [ and margins] will always attract funding,particularly bonds and wholesale funding.HGH being listed in Australia means Australian funds etc can legally invest in HGH's funding products.
Westpac demerged their BT fund management business from the parent bank a few years ago, despite funds management being seemingly very profitable. Today people, if they go into a bank branch, want instant (or at least 24 hour) service. Retirement Savings and Reverse Mortgages are not things where a fast solution is necessarily a desirable solution, It may be that with ever increasing legal requirements that getting staff qualified in these specialist areas is not straightforward. Thus Heartland's approach: centralizing expert staff at a call centre, may be the way of the future? Jeff at the AGM certainly said that when questioned on the subject. I don't see why the likes of big banks couldn't take a similar approach though. These days with video conferencing technology, customers could be ushered into a special room at the branch and hooked up live with a bank employee expert at a video call centre. That to me would be a more credible solution than being handed a Seniors Australia card and being told to go home and ring them.
Personally I have a real problem with dealing with any financial institution with no local branch. When things go well it can seem easy. But when things go wrong,..? I would like to think I can go in and 'thump on a desk' somewhere local.
The problem is that as a wholesale institution if you want a two year bond and the people paying that interest are on average on a 6-8 year term there is a cashflow timing mismatch after two years. Heartland might have to offer higher interest rates to new providers of cash bonds. The banks might up their securitization interest rates ti Heartland. Or maybe Heartland Bank might be required by parent HGH to pay a 'special dividend', so that HGH could use such money to recapitalise their Australian operations (wouldn't the RBNZ like that)? It is not clear if recovering such cost increases from Reverse Mortgage holders could be done in a way that does not anger them and torpedo future reverse mortgage business in Australia . Hence Jeff's mission to lock in a longer term lending source at a low fixed rate.Quote:
HGH have spent time and effort making sure their process is right.This has been in consultation with both NZ and Australian regulators.HGH's process is so good it has been approved by Consumer in NZ,and needed little [if any] change to comply with Australian Royal Banking Commission requirements.
Excellent security [and margins] will always attract funding, particularly bonds and wholesale funding. HGH being listed in Australia means Australian funds etc can legally invest in HGH's funding products.
SNOOPY
A lot of "speculation" on your part.
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.