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Due to the rising cost of funding, Bluestone have withdrawn from the mortgage broker & financial planner channel.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.  

The Australian Securities & Investments Commission (ASIC) is seeking people to participate in research on reverse mortgages. ASIC is undertaking this research into consumer’s experience of reverse equity, as part of it’s role as the consumer protection regulator.

Participants must live in Victoria and have taken out a reverse mortgage within the last 12 months. The research involves a confidential 40 minute chat. Chant Link & Associates, the agency conducting the research on behalf of ASIC can be contacted on 03 9517 9607.

Cannex, the main rating agency for financial products in Australia,  has just announced the findings of their most recent research into Australian reverse mortgages, and they’ve found only two providers are worthy of their ‘5 star’ superior value rating.  

Although the Cannex research is a handy tool, it should just be one factor among many when choosing your lender. Ultimately,  your choice of lender will be determined by your individual needs; the best lender for you may not necessarily be the best for your friend, for instance.

You should seek out a SEQUAL accredited reverse mortgage broker to help you with this process.

The two lenders to receive 5 star ratings were ABN Amro & Bluestone. For more info on both go here

In addition on April 17, ASF announced that they would suspend all new lending. A notice from Managing Director John Thomas said:

“While ASF does not source its funding from the global capital markets it is nevertheless still indirectly impacted by the turmoil and this directs us to adopt and implement a more conservative approach to lending.”

According to Stuff, Sentinel in New Zealand (owned by the ASF group) has also pulled back from new lending.  

ASF has also announced that Jeff Kennett has resigned as Chairman of the board, effective immediately.

ASF have recently announced that they have suspended a number of product offerings indefinitely.

They will no longer be offering their ’50’s Plus’ product, where borrowers under 60 can still access funding as long as they service the interest until they turn 60. There is still one Australian lender who will do reverse mortgage for people as young as 55. For more info go here or to Seniors First.

In addition, ASF have also ceased their retirement village reverse mortgage. Although this had a very limited take up in Australia, it was thought to hold a lot of potential for future growth.   

After recently downsizing their conventional and non-conforming home loan business as a result of the credit crunch, Bluestone have made plans to expand their reverse mortgage business. They have identified this sector as having particularly strong growth prospects over the coming years.

Bluestone will attempt to increase distribution of its reverse mortgage product, EQUITYtap, by making it compulsory for mortgage brokers to become accredited before they explain to consumers the risks and rewards of reverse mortgages.

Under the initiative all brokers must achieve Senior Australians Equity Release Association of Lenders [SEQUAL] accredited reverse mortgage consultant status from May.

Today the Reserve Bank decided to leave rates on hold, after previous increases in February and March. This is good news for consumers, and comments from the RBA governor Glenn Stevens indicate the economy is finally slowing with inflation also easing.

Most market analysts predict that there is only a 7% chance of a rate increase next month, and that Australia may be at the top of the interest rate cycle with rate cuts now expected later in the year. 

The recently released 2007 SEQUAL Report contains some interesting data on exactly how people are using their reverse mortgages:

1. 90% of new loans were taken as lump sums, and only 10% as an income stream.

This figure is somewhat misleading as the ‘lump sum’ data also includes all loans taken wholly or partly as a ‘cash reserve’ or ‘line of credit’. 

2. The proportion of younger borrowers is rising

Although the average age for people taking out new loans is 72, the 40% of new borrowers were under 70 years of age (compared with 29% for existing loans). This indicates that reverse mortgages are growing in popularity the fastest amongst those aged 55-70.

3. Variable interest is the most popular choice    

Although fixed rates have risen in popularity to 34% of all new loans in 2007, the vast majority of reverse mortgages were established with a variable rate in place (66%).

4. Mortgage brokers are now the most common way for seniors to establish their reverse mortgage

45% of all new loans were established via mortgage broker in 2007, compared to only 34% directly with a financial institution. This seems to confirm that seniors are actively seeking the wider product choice that brokers can provide in an effort to get a better deal and save on interest.

5.  Home improvements and general living the most common purposes

 The most common use of funds provided by reverse mortgages in 2007 were:

• Home improvements - 16%
• Regular income -  12%
• Debt consolidation - 11%
• Travel - 8%
• New Car - 5%

The figure for ‘other’ was listed at 41%, but anecdotally this can be mostly attributed to general consumption and living expenses.   

According to the annual industry report released last week, the demand for reverse mortgages in Australia continues to grow strongly. The industry body, SEQUAL,  has just released the market figures for the 2007 year which show that outstanding reverse mortgage loans now exceed $2 billon. 

A summary of the key points found in the report:

• 33,700 loans now outstanding amongst senior conumers
• Market growth for existing loans was 34% in the past 12 months
• The average loan size is now $60,000

The report also found that whilst the outlook remains strong, growth for new loans slowed in the second half of 2007. This was due to a combination of factors including the global credit crunch and political uncertainty surrounding the recent federal election.