I recently did a television interview on the subject of reverse mortgage finance for seniors with Yahoo 7. You can find it here.

It’s a quick, handy insight into how reverse mortgages work, and the “do’s and don’ts” of these loans.

If you have any further queries, you can email me directly info@reversemortgagewatch.com.au or call Seniors First on 1300 745 745.

Regards,

Darren

I was recently interviewed for the article below & am keen to hear from any people this may have affected. Post your comments below or email directly at info@seniorsfirst.com.au

Regards,

Darren

Vast changes to the reverse mortgage market in tandem with the recent NCCP introduction is leaving a large pool of older borrowers without acces to funds.

Seniors First managing director Darren Moffatt said that since the global financial crisis, reverse mortgage lender numbers have contracted drastically, down from 21 prior to the crisis, to four major lenders at present, including St. George, CBA and Bankwest.

Moffatt said while the previous minimum age for equity release was 55, it has now also increased to 63, but mostly 65.

“The sector has really felt the brunt of the GFC; equity release requires capital to be tied up for a long time, so when capital became scarce, the sector was the first to feel the result of that,” Moffatt said.

The result is that the expectations of many older borrowers for access to equity in their properties is often not being met, Moffatt said.

“I have literally had quite a few potential borrowers on the phone, and when they have found out they can’t get money like they used to be able to – they can’t release equity – they are really angry,” he said.

The NCCP is only compounding the problem for 55-65-year-old borrowers.

“The NCCP is definitely causing lenders to be very, very careful or reluctant to lend to people in their late 50s to early 60s with forward mortgages; if they don’t have an exit strategy – for example a large super fund, or a second property – it can be difficult for these borrowers to get funds,” Moffatt said.

“The point is, this very significant change across the industry has happened, and is affecting a huge amount of people that have no idea that the change has occurred,” he said.

Moffatt argues the result is a “massive market opportunity” for banks and other lenders in the pre-retiree space, due to huge demand for access to existing equity as the community ages.

Source: this article originally appeared here: http://www.brokernews.com.au/news/newsletter/117418

The assistant treasurer, Bill Shorten, recently tabled new ’second phase’ National Consumer Credit Protection (NCCP) legislation to parliament. For reverse mortgages, the Bill includes:

• A no-negative-equity guarantee for reverse mortgages, so seniors can’t end up owing more to the lender than their home is worth
• Other protections and disclosure requirements to ensure consumers can use reverse mortgages with confidence.

Mr Shorten praised the conduct of the reverse mortgage industry body:

“Development of the reverse mortgage reforms has been assisted by the mature and constructive approach taken by the reverse mortgage industry and its peak body, SEQUAL,” Mr Shorten said.

“The reverse mortgage industry anticipated the need for consumer protections and acted by introducing a robust industry code – some aspects of which are reflected in our legislation.”

In response, the peak equity release industry body (SEQUAL) acknowledged the considered approach taken by the Gillard Government in consulting with industry in order to ensure that new regulations will both protect consumers and preserve choices for Senior Australians facing the challenge of funding their retirement.

The SEQUAL Chief Executive, Kevin Conlon confirmed that Government had been willing to take the existing high standards of practice within the Australian equity release industry into account in order to avoid an unnecessary regulatory burden on this rapidly growing market. “This has been a very good example of effective consultation between Government and industry which has resulted in meaningful outcomes for consumers”, he said.

Conlon argues that, “With the emergence of the Australian equity release market, senior Australians now have the ability to tap into the stored wealth of their home in order to live well in retirement and importantly, stay in their home”.

The introduction of the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 in the House of Representatives, reinforces the consumer protection initiatives introduced by SEQUAL which were described by the Assistant Treasurer as “a robust industry code” and ensures that all equity release providers must meet these standards.

However, Kevin Conlon warned that there is much more that needs to be done in order to protect the entitlement of Senior Australians to access their wealth in order to live well in retirement. “We continue to encourage Government to develop effective programs to improve the financial literacy of those facing the challenge of funding their retirement”, he stated.

We hear along the industry grape vine that a new reverse mortgage lender, specialising in aged care and accommodation bonds, will emerge shortly.

This is great news for Australians seeking to fund aged care without selling the family home, as reverse mortgage and equity release options for this are currently extremely limited.

More news as it comes to hand – watch this space.

Regards,

Darren    

The recently announced reforms to reverse mortgages (as part of phase two of the NCCP) are to be applauded.

By mandating that lenders provide a ‘No Negative Equity Guarantee’, all seniors can now feel comfortable that reverse mortgages are safe.  And by also ensuring that intermediaries such as brokers provide better disclosure of the possible financial consequences of entering into these types of contracts (by way of equity projections using recognised reverse mortgage calculators) the government has also helped seniors better assess how accessing credit can reduce their equity in their home and limit their choices in the future.

However, it must be said that members of SEQUAL have been providing these protections and following these processes for years, and have an extremely low customer complaint ratio to show for it. It is a testament to SEQUAL that the government has adopted these ideas.

What these reforms won’t stop however, is a small number of seniors being incorrectly sold a ‘reverse mortgage’ when in fact the loan they are being offered is not a true reverse mortgage, but a ‘line of credit’ or ‘low doc’ that affords none of the protections listed above.

If you are unsure about the loan you have, email me at info@seniorsfirst.com.au

Darren

What follows is the media statement released yesterday by Assistant Treasurer, Bill Shorten. Good news for senior Australians, but I will comment on this in more detail shortly in a separate post. Regards, Darren

Older Australians planning to take out a ‘reverse mortgage’ on their home will be better protected against negative equity and other pitfalls as part of the Government’s sweeping consumer credit reforms.

The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, today asked older Australians and other interested stakeholders to comment on draft legislation that will increase protections for seniors using a reverse mortgage.

“Many senior Australians have worked hard to own their own home before retirement, and if they need to use credit to access the equity in their home then they deserve to be adequately protected,” Mr Shorten said.

“These measures deliver a new level of protection for seniors who take out reverse mortgages. Reverse mortgages are different from other credit products and it is important the law takes into account their unique characteristics. With these new measures, older Australians can have greater confidence when using these products, and will be able to make better choices.”

Example: Peggy and Bob took out a reverse mortgage twenty years ago. Bob passes away and Peggy is now 85 and has health issues.

Peggy decides to sell the home and move into a residential care facility. However, fluctuations in the property market and the way that debt grows in a reverse mortgage mean that Peggy now owes $1.1 million when the house is only worth $633,000.

Previously, Peggy’s lender could require payment of the debt in full to release the mortgage. Now, under the new negative equity protection, Peggy will only be required to pay back the value of her home when it is sold.

This reform gives borrowers certainty about what will happen at the end of the contract, to assist their planning. (taken from www.moneysmart.gov.au)

The changes will amend the National Consumer Credit Protection Act 2009 to significantly reform the regulation of reverse mortgages.

Key measures in the draft legislation are:

• Australia’s first statutory protection against negative equity, restricting lenders from asking seniors to pay more than the value of their home.
• Better disclosure of the financial consequences of entering into these types of contracts – so that seniors can better assess how accessing credit can reduce their equity in their home and limit their choices in the future
• New requirements on lenders before they act on a default – including an obligation to take reasonable steps to contact the borrower in person, make sure they understand they are in default and provide the borrower with an opportunity to rectify the default.

“This draft legislation continues the Government’s delivery of the National Credit Reforms, and our commitment to improve the regulation of equity release products under the Delivering for Seniors package,” Mr Shorten said.

“I encourage older Australians to participate in this consultation and provide their views on the measures outlined in this draft legislation.”

The Government has conducted extensive consultations since February 2010 in the development of these reforms, enhancements, including convening a dedicated consultation working group comprised of key industry, consumer group and legal representatives.

Further details of the national consumer credit package, can be found at www.treasury.gov.au/consumercredit.

Consultation on the draft legislation closes on 17 August 2011.

When establishing a reverse mortgage loan through a reputable lender or broker such as Seniors First, it will quickly become apparent that other advisers also have an important role to play. Although your SEQUAL accredited broker will manage the application process for you, depending on your circumstances and choice of lender, you will also need to consult with one or more of the following:

•    Legal adviser /solicitor

Once the loan is approved and contracts are printed you will need to obtain independent legal advice to confirm you understand the terms of the reverse mortgage contract you are signing. This is a mandatory requirement of all SEQUAL lenders, and is perhaps the strongest consumer safeguard. 

• Centrelink Financial Information Services (FIS) officer

If you are receiving any aged pension (or even if you might be in the future), you should consult with a Centrelink FIS officer before you draw any reverse mortgage loan funds. They cannot provide ‘financial advice’, but their role is to provide information on pension entitlements, and in particular the impact a reverse mortgage loan may or may not have on pension levels. Although in many cases there is no impact, this is nevertheless an important check.

• Financial adviser

Many lenders require that you also seek financial advice from a qualified financial planner as part of the final loan approval. This is to ensure that you have considered other alternatives such as downsizing and that you fully understand how capitalising and compound interest works.  

A good reverse mortgage broker will encourage you to consult widely from these (and other) stakeholders. At Seniors First, we also spend a lot of time educating clients on how to minimise reverse mortgage interest and fees.

Feel free to contact me directly with any queries at info@seniorsfirst.com.au

Darren

Reverse mortgages continue to grow in popularity with Australian seniors, according to a new report.

The Deloitte report, commissioned by SEQUAL, shows that as of 31 December 2010 the Australian reverse mortgage market was comprised of more than 41,000 loans with total outstanding funding of $3bn. The total represents 11% growth in the market from 31 December 2009, and the average loan size has also increased to $72,500, up from $51,148 in 2005.

Deloitte partner James Hickey said the reverse mortgage market has recovered from its lows during the GFC, though it has yet to return to its pre-GFC peak.

“Nevertheless, there remains gradual recovery in growth which is encouraging,” Hickey said.

SEQUALCEO Kevin Conlon said reverse mortgages may continue to grow in popularity as a new generation moves toward retirement.

“It appears that attitudes towards retirement funding are changing. As Baby Boomers approach retirement, equity release strategies are increasingly seen as a useful option to access the wealth stored in their home in order to meet the challenge of living longer and living well,” he said.

Conlon emphasised that SEQUAL’s industry accreditation protocol that raises professional standards above the minimum education requirements imposed by legislation and industry association membership. SEQUAL has established a national network of accredited Consultants (SERC) which assist consumers make informed decisions about equity release strategies. 

“It is important that consumers make informed decisions and carefully consider how their needs may change over time,” he added.

He welcomed the encouragement provided by both industry sector associations and market regulators for the meaningful contribution SEQUAL has made towards the establishment of an efficient and ethical seniors equity release market in Australia.

A call for the asset rich to use equity release to fund their aged care needs is being debated at a series of public hearings conducted by the Productivity Commission.

Responding to the “Caring for Older Australians” draft report, the peak equity release body (SEQUAL) argues that whilst older Australians should be encouraged to access the wealth they have accumulated through home ownership, they should not be discriminated against either on the basis of their success or age.

The report states that, “Many participants to the inquiry, including consumer organisations, called for greater aged care contributions from those older Australians who had the financial capacity to do so, provided that those in need were protected”.

However, the SEQUAL Chief Executive, Kevin Conlon said today that “Equity release strategies are likely to emerge as a significant part of retirement funding and the current debate around the levels of Aged Care co-contributions needs to be carefully considered against that growing demand”.

 “There is good reason to explore the options provided through equity release in order to meet the challenge of living longer in retirement”, explained Conlon.

 The Australian Housing and Urban Research Institute (AHURI) surveyed 1,600 home owners aged 55 and found that more than 90 per cent of those surveyed wanted to stay in their home, with only 63 per cent saying they were happy to consider living in a retirement village if they needed help.

 Conlon argues that, “With the emergence of the Australian equity release market, senior Australians now have the ability to tap into the stored wealth of their home in order to live well in retirement and stay in their home”.

The two primary investments for many Australians will be superannuation and their family home but for those now approaching retirement, compulsory super came too late for a generation that can expect to live longer than any generation before them and intends to live well in retirement.

 The good news is that the majority of senior Australians have achieved the “Great Australian Dream” of owning their own home. Total Home Equity (Owner Occupied) was $887 billion, at the end of 2005. The Over 60s accounted for $345bn (39%). Source: Australian Bureau of Statistics.

 However, the so-called Boomers have relied heavily on property ownership to create wealth and this has made them asset-rich but cash-poor. In the past, any retiree in this difficult position, had two choices; reduce their living standards or sell the home (often having to then move away from family and friends).

 Mr Ian Yates, Chief Executive of the Council on the Ageing is reported as saying that his organisation has been “telling governments for years that older Australians want to stay in familiar surrounds”.

Conlon asserts that, “the family home is now an intrinsic part of the planning process” and warns that, “It is vital senior Australians have choices and are well-placed to make fully informed decisions about their retirement funding”.

 The two main types of equity release products are Reverse Mortgages and Home Reversion Plans. Each product type offers the opportunity to release equity as either a lump sum or as an ongoing income stream, without an obligation to make regular monthly repayments.

 The strategies for Equity Release are diverse. For some retirees they are an effective means to supplement income or to provide access to capital. For others, equity release can be a tool to help manage market volatility. For frail retirees with poor health, it can provide them with choices for accessing the care they need and provides the ability to pay the aged care fees.

 When used effectively, Equity Release may help senior Australians to access the significant wealth they have accumulated in their home in order to more effectively live the life that they choose.