home equity release
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Home Equity Release. Demystifying and re-igniting the category. HER – A complex Product. Attitudes to HER have changed over time Family home hard to plan as inheritance NNEG critical element of HER loan HER annuities an attractive product - PowerPoint PPT PresentationTRANSCRIPT
Home Equity Release
Demystifying and re-igniting the category
HER – A complex Product
Attitudes to HER have changed over time
Family home hard to plan as inheritance
NNEG critical element of HER loan
HER annuities an attractive product
Reversions provide maximum cash but create winners and losers – higher LVR alternative?
HER Interest Bases – a range of alternatives
Variable interest Variable interest best – perhaps best – perhaps
with CAPwith CAP
Fixed for term or Fixed for term or life – penalties on life – penalties on
VMO an issueVMO an issue
Interest linked to Interest linked to CPICPI
New Zealand Age Profile
An aging population requires a radical shift in thinking
Source: NZ Dept of Statistics Projections
HER model operates under a HER model operates under a range of assumptionsrange of assumptions
Adjusted Population Mortality
Move-to-Care developed from AIHW statistics
Voluntary-Move-Out often health related
Joint lives – adjusted single life
Interest differential over HPI – about 4.5% a year
Issue expenses relatively high
Solvency Reserving for HERSolvency Reserving for HER
Conservative figures for mortality and other move-outs
Similarly, conservative assumptions on interest and HPI – adjust house values to cyclical trend low
Major issue as whether need to zeroize negative reserves
Simulation probably a better measure of risk
Simulation – modelled to reflect market reality
Base pattern of cyclical rates of interest and HPI- Adjust each run for Normal stdev of 5% each year
Regional and individual variations on each loan of Normal stdev 7.5% each year
Random by probability rate for exits, top-ups
Discounted profit-flows sorted in ascending order to assess VaR and tVaR at various %
Funding has always been the main consideration
HER a strong match with Annuities – achieved by Pension Fund investing in HER - or HER investing in annuities
Securitization another long term funding mechanism
Rating agencies extended RMBS thinking to HER without re-assessing long term interest
HPI assumptions – ultra conservative assumptions will hinder HER product development
Cash-Flow Example
Year Gross Debt Net Cash Net Profit1 106,816 -3,685 -4,2615 118,602 6,846 1,427
10 137,680 7,437 34815 148,622 12,294 2,16520 126,255 18,693 1,98925 70,219 18,024 1,06630 19,813 8,580 1,69135 2,649 1,335 364