Page 383 - 2019 6th AFIS & ASMMA

Alternatively, if the government really wanted to make this a subsidy
program, they could also derive from the break-even point and extend
to the previous time. Anyway, since we have a lower cost of capital, we
can actually offer more loan amount to the borrower. So instead of 60%,
maybe you can raise it to 70%. So that is a policy decision; whether they
want to have the financial sustainability or to really subsidize these senior
citizens.

So what would change if we change the whole program to direct Session III
lending with no guarantee or insurance at all? That would be basically
shift the dashed red line into the dashed green line, so we can see that it
would take much longer for the expected balance to go beyond the house
value. That's the time where some potential loss could be realized.

Similarly, the second recommendation is to reduce the assignment
trigger level. So previously, the green line is the time the balance hits the
98% of the balance. If we reduce that trigger amount to a lower amount
to the pink line, then what will happen? We see that the loan balance
will hit that line at a much earlier date. So the effect is that it will actually
reduce the time period that the program requires the private rate of
return, basically reducing the overall cost of the program, and extending
the direct lending period while shrinking the insurance period.

384 2019 6th AFIS & ASMMA Annual Meeting 385