Hi there,

Over the last few weeks there has been increasing media speculation that the Federal Government will be encouraging seniors to use reverse mortgages for aged care funding in the coming May budget. If so, we can probably expect the demand for these loans to take off.  Check out a video interview here I did this week with an industry publication.  Feel free to leave comments, or if you need help with your own reverse mortgage query contact me directly on 1300 745 745 or info@reversemortgagewatch.com.au

Regards, Darren




As seen on Brokernews.com.au

I was interviewed yesterday on this topic yesterday, the full transcript appears below. Regards, Darren

The government appears set to lend its support to the reverse mortgage market, but the industry may not be able to meet an influx of demand.

News Ltd has claimed the Federal Government is set to urge retirees to adopt reverse mortgage products as a means of funding aged care. Should this happen, Seniors First managing director Darren Moffatt has said existing lenders would be unable to meet demand.

“It’s a positive for the industry and a positive for consumers, but it needs to be managed well. The last thing we want to see is a wholesale movement to the scheme with a lack of supply, and currently there are only two or three lenders in the market,” he said.

Moffatt predicted, however, that lenders may flood into the market if the government voices its support for the reverse mortgage sector.

“I would expect that lenders would be pretty quick to come into the breach. Credit growth is down, so an opportunity like this is very attractive to banks and lenders. If the government is serious about this, they may have already been in talks with banks and lenders about getting involved in this market,” Moffatt said.

Another potential problem facing the reverse mortgage market could be a lack of qualified brokers. Moffatt said few brokers specialised in the products, and demand could quickly overwhelm supply.

“I’d certainly be happy, because we’re one of the few specialists left in this area. The pool of brokers who are qualified – and by qualified I mean accredited by SEQUAL and who sell these products on a regular basis – is pretty small. I daresay there’s enough of a network to cover initial enquiries, but demand would scale up pretty considerably if the government got behind this product,” he said.

However, Moffatt warned against brokers jumping into the market merely to diversify their revenue. He said brokers looking to enter the reverse mortgage market would have to become specialists, and position themselves to consumers as experts in the products. This may not be worthwhile for many brokers who may be better served setting up referral relationships.

“Some brokers have to question whether or not this is for them. Just because it happens to be an opportunity in the market doesn’t mean it’s for them. The loan size is smaller, and there’s quite a lot of work involved. People who do these loans are generally quite altruistic and enjoy helping people. They’re certainly not as lucrative as normal forward mortgages,” he said.

Original source here: http://www.brokernews.com.au/article/government-to-support-reverse-mortgages-but-supply-scarce-128060.aspx

An interesting article appeared in the Sunday Telegraph this weekend.

It claimed that in response to the recent Productivity Commission report  recommending that government establish a home equity release scheme to fund aged care costs, that “…a market-based lender is the more likely outcome than a government-backed scheme”.

Given the huge pressures already on federal government budget expenditure, it seems there may be a very limited appetite for government to also effectively become the dominant lender for aged care accommodation bonds.

In the report, Minister for Aged Care Mark Butler said: “As the Productivity Commission inquiry showed, reverse mortgages are being taken out … for a range of reasons – to pay for aged care, to pay for holidays, new cars and even motor homes to go travelling.

“We know that older Australians have worked hard to own their own home before retirement and if they choose to access the equity in their home, then they deserve to be adequately protected.

We already have some lenders in the market providing this service, but more choice for consumers would certainly be welcome.

For more information on current lenders, please email info@reversemortgagewatch.com.au

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