The FBAA recently called for mandatory training and a “uniform accreditation” process to be applied to anyone offering reverse mortgages to make sure borrowers receive appropriate advice and understand the fine details of this finance product.
According to FBAA executive director Peter White, the findings of a recent ASIC review of the sector highlight “the need for higher standards in the often-misunderstood lending sector”.
“ASIC found that while reverse mortgages can help people stay in their homes longer and therefore meet their short-term financial goals, often the long-term risks associated with reverse mortgages aren’t adequately explained,” White said.
The FBAA said it had been working closely with ASIC and had formed a specialised working group under chair Stephen Rasmussen.
“Our working group is focussed on a whole of industry approach to strengthen consumer safeguards, but it’s important to note significant protections have been in place since 2011 including high level disclosure requirements and the ‘no negative equity guarantee’," Rasmussen said.
According to Rasmussen, while main lenders have maintained high standards, reverse mortgages are a “highly specialised area ideally served by practitioners who have developed the knowledge and experience in the sector”.
He said “the tick-box response” of some lenders is not appropriate because all reverse mortgage applicants deserve good, independent advice that considers long-term needs.
White said the FBAA knew about the gaps and was bent on closing them. More than a year ago, he instructed the association’s training organisation to come up with a new leading-edge course which its members needed to complete if they wanted to write reverse mortgages. The course has been made available to non-members as well.
ASIC found that 63% of borrowers “could end up with less than they need to pay the upfront cost of aged care by the time they reach 84-years-old”. But ASIC also found reverse mortgages can lead to increased net equity with stable interest rates and modest property price growth.
According to White, “all reverse mortgage writers should be accredited to the same high standards demanded of FBAA members”.
A leading lender speaks
In an interview with MPA, Heartland Seniors Finance CEO Andrew Ford said ASIC reviewed the data of over 17,000 reverse mortgages and noted in their report “reverse mortgages can play an important role in helping older Australians improve their standard of living in retirement while remaining in their homes”. They also commissioned in-depth interviews with a number of borrowers, with all expressing satisfaction with their reverse mortgage.
“If you look at the sector as a whole, it’s strictly regulated and has very few complaints,” Ford said
According to Ford, brokers do need separate training for reverse mortgages because it’s a different product, but the training need not be uniform. However, even if it is uniform, Heartland will still provide its own mandatory training because it believes different providers offer different products.
“We have developed our own training, which is free-of-charge for all Heartland-accredited brokers. This training provides a strong knowledge base on [reverse] mortgages," Ford said.