Over Fifty Group last week announced it’s exit from the Australian reverse mortgage industry, effective immediately.

Although the credit crunch and the subsequent rising cost of funds was partly to blame,  their exit is probably mostly a function of mixed sentiment between previous management and shareholders over the long-term direction of the company. They have cited the capital intensive nature of reverse mortgages as a major deterrent for further operation, and will now focus on funds management and investment. They have no plans to re-enter the market in future.

Over Fifty Group had a good product offering, and their exit is regrettable for consumers and the industry alike. Given the (hopefully temporary) previous withdrawal of Bluestone and ASF, product choice has diminished significantly over the last 3 months. Now, perhaps more than ever, having a qualified reverse mortgage broker to guide you through the remaining lenders is crucial.  

Yesterday the Reserve Bank decided to keep interest rates on hold yet again. Whilst this is good news, there is a growing school of thought that rates may come down later this year as the economy begins to slow considerably.

This would provide relief for many households, and would also make reverse mortgages more attractive to many senior Australians who are currently refraining from releasing equity until interest rates go down.  

A new report has found that Australians now have the second longest average life span in the world - only the Japanese live longer. Today’s average life span of an Australian at birth is about 81 years — some 25 years longer than a century ago — and rising.

While this is obviously good news, it poses a serious financial challenge to the immediate future generations of senior Australians who are not prepared for such an extended period of retirement. How will they fund a decent lifestyle for so long?

There is an excellent article in The Australian today that summarises the problem and offers potential solutions.  The author, Dr Don Stammer, correctly identifies reverse mortgages as a good solution in many cases, if done correctly. Dr Stammer advocates - as does Seniors First -  taking reverse mortgage funds as gradually as possible to better preserve equity for children and beneficiaries.

Kevin Conlon was today appointed as the first Chief Executive Officer of the Senior Australians Equity Release Association of Lenders (SEQUAL), the peak Reverse Mortgage Industry Association.

“Kevin Conlon’s strong background in emerging markets and international banking makes him ideally qualified to take on the inaugural CEO role and guide SEQUAL through the next stage of its development,’ said Kieren Dell, SEQUAL Executive Director.

“The SEQUAL Board determined that SEQUAL had developed to a point where a full-time CEO was needed, and decided that Conlon was the outstanding candidate for the role.”

Prior to joining SEQUAL a year ago to drive the crucial SEQUAL education program as Head of Education, Conlon was the Head of Education for the Mortgage and Finance Association of Australia (MFAA) where he designed and delivered highly successful education programs for Mortgage Brokers. He also has an impressive track record operating at senior levels across a number of financial market sectors  which has seen him lead some of Australia’s most significant corporate finance and capital market transactions.

“I am committed to the process of ensuring that consumers are well-placed to make informed decisions about their retirement funding options. I look forward to the opportunity of guiding the development of an efficient and ethical Reverse Mortgage market,” said Kevin Conlon, SEQUAL CEO.     

The NSW Department of Fair Trading recently conducted an online consumer survey on reverse mortgages that provides an intriguing insight into the public understanding of these loans.  Here is a cross section of the best questions and how people answered: 

1) Are you aware of the availability of a credit product for retirees called a reverse mortgage?

Yes - 78% No - 22%

2) Have you ever taken out a reverse mortgage?

Yes - 3% No - 94% Other - 3%

3) Do you think that sometime in the future would you consider taking out a reverse mortgage?

Yes - 48% No - 50% Other - 2%

4) How did you hear about this product?

TV - 35%, Radio - 8%, Newspaper/Magazine - 30%, Website - 3%, Friend/Family - 10%, Mortgage Broker - 4%, Financial Adviser - 2%, Other - 8%

5) If you took out a reverse mortgage what would you use the money for? (Respondents were asked to select all that applied, hence percentages exceed 100%)

Living expenses - 42%, Holiday - 24%, Home repairs - 43%, Medical expenses - 33%, Car - 18%, Help family - 20%, Other - 5%.

Although the sample for this survey was small (only 300 took part), half were in the current eligible demographic for the reverse mortgages in that they were aged 55 years or older.  

More than 1,000 reverse mortgage consultants have now been officially accredited across Australia, according to SEQUAL, the peak industry group representing reverse mortgage lenders.

“Retirees’ demand for reverse mortgages is growing rapidly alongside our ageing population,” said SEQUAL’s Head of Education, Kevin Conlon, who was appointed in 2007 to spearhead the initiative.

“SEQUAL is committed to ensuring seniors have access to accurate information on reverse mortgages and retirement financial planning. In just one year, SEQUAL’s education courses have created a geographically diverse network of trained reverse mortgage professionals on whom seniors can rely,” he says.

‘It is encouraging that brokers and planners are active participants in the program. It is critical that these parties combine their skills in the best interests of seniors,” says Conlon.

“SEQUAL’s Reverse Mortgage Consultant (RMC) designation allows retirees to easily identify market practitioners who have the skills to be considered a trusted source of reliable information. Accreditation is a badge of quality.” 

The Federal Government yesterday released a Green Paper on the impending federal regulation of the credit sector. This discussion paper indicates that ASIC will soon regulate the provision of reverse mortgages to senior consumers.

The Green Paper outlines a way forward for the Commonwealth and states to transfer the remaining financial services regulation from the State level. Under the plan, delivered by the the Hon Nick Sherry, Minister for Superannuation and Corporate Law, financial services including mortgages, mortgage brokers, margin lending, non-bank lending and trustee companies, will move to the Federal level.

“This is about better protection of the Mums and Dads who take out a mortgage and deserve to know that the brokers selling it to them are reputable and upfront with their fees and charges,” said Mr Sherry.

“The Financial Services and Credit Reform Green Paper provides a plan for change – to benefit the consumer, while reducing red tape and compliance costs for business, and ensuring Australia stays ahead in the international financial services market,” Minister Sherry said.

“On mortgages, it’s absolutely critical that the advice new borrowers receive is top quality and that they are not getting into debt they can’t service. I am also concerned about reverse mortgages and the number of people taking them up without a clear understanding of the implications.”

Public seminars can be a highly effective way to get information on reverse mortgages you need. For people in Melbourne considering a reverse mortgage, Seniors First are conducting a series of FREE public forums this week. With representatives from Centrelink and the legal profession attending, this is your opportunity to get all the facts.

The dates and venues are:

ESSENDON - 21st May, 10am. Buckley Bowls Club, Cooper St Essendon.

BULLEEN - 21st May, 2pm. Manningham Club, 1 Thompsons Rd Bulleen.

BOX HILL - 22nd May, 10am. Best Western ‘The Tudor’, 1101 Whitehorse Rd, Box Hill.

BENTLEIGH - 22nd May, 2pm. The Bentleigh Club, Yawla St Bentleigh.

To book your seat please call 1300 745 745.

If you live in Victoria you may recall the ‘Money for Living’ scam of 2005 where several hundred pensioners were fleeced by a former convicted fraudster operating a dodgy equity release scheme. ASIC have now successfully prosecuted the director, Gary O’Neill, and he recently pleaded guilty to two counts of dishonestly using his position as an officer of a company.

This is a great result for ASIC, and yet another illustration to senior consumers of why it is so important to deal with ONLY SEQUAL accredited introducers when seeking to release equity from their homes.

So how did this dodgy scheme work?

It went like this: Money for Living used the celebrity endorsements of Dawn Fraser & the actor Paul Cronin to aggressively advertise their scheme on TV as an alternative to reverse mortgages. Although it purported to release equity from people’s homes, it in fact required that applicant sell their home for less than market value to Money for Living, in return for a guaranteed monthly income and lifetime tenancy. A BIG no-no.

Money for Living failed to disclose the lifetime tenancy agreements to the lenders who took subsequent mortgages over the properties in question, and the whole thing fell over like a house of cards.  At the time of this debacle in 2005, reverse mortgages were only just getting off the ground in Victoria and many people understandably confused this scheme with reverse mortgages and other legitimate forms of equity release, and the Victorian market has subsequently lagged behind the rest of the country as a result.

This scheme was completely different from conventional equity release. For instance, normal reverse mortgages are just loans that:

• Do not involve the sale of a property
• Do not require an change in ownership structure
• Are repaid from the future sale of the property

 Hopefully this successful prosecution will now see Victorians use legitimate forms of equity release in greater numbers.    

Bluestone Equity Release has announced that they will scale back their Australian reverse mortgage offer as a result of the global credit crunch.

Due to the rising cost of funding, Bluestone have withdrawn from the mortgage broker & financial planner channel. Although their award-winning reverse mortgage will still be available via credit unions and other alliance partners, the product will no longer be sold through mortgage brokers due to the higher cost of originating loans through that channel.

Whilst this is disappointing for consumers, as the product level of choice diminishes further, it should hopefully be temporary. Indeed, Bluestone CEO Peter McGuinness has indicated that once global liquidity pressures ease, they will review this decision.