Australian lenders drop reverse mortgages, government can prepare entry

Echoing the decisions of several major US banks that have moved out of the reverse mortgage business in recent years, a number of banks in Australia are now doing the same, including the country’s largest lender, the Commonwealth Bank. This could pave the way for the Australian government to enter the fray with a low-cost public alternative to dwindling private sector offerings, according to local media and TV reports.

Commonwealth to stop offering reverse mortgages after receiving criticism from the Australian Securities and Investments Commission (ASIC), according to an article filed by reporter Amy Bainbridge for the Australian Broadcasting Corporation’s “7:30” program (ABC).

Private outing (s), public alternative

A leading Australian financial comparison site – similar to Bankrate in the United States – confirms Commonwealth reverse mortgage offer to cease in 2019, which has shaken one of the largest and most important advocacy organizations from the country.

In addition, the Australian Financial Review (AFR) also confirmed that another local bank in the country, Bankwest, took of to offer reverse mortgage products, making it “the last of the [Australia’s] major lenders to pull out of the $ 3.1 billion sector amid rising costs and tighter regulations, ”AFR said. Existing reverse mortgage borrowers, however, will continue to be served by Bankwest, but the bank will no longer accept new borrowers. Bankwest has been a subsidiary of the Commonwealth since 2008.

Interestingly, AFR notes that while small lenders will continue to remain a source of reverse mortgages, the Australian Federal Government itself may choose to fill the new void created by these large outflows.

“[Commonwealth] and Bankwest’s decision to stop new lending means reverse mortgages are now only offered by small lenders, such as Heartlands Seniors’ Finance, IMB Bank and P&N Bank, ”AFR notes. “The federal government is expected to enter the market with a low cost reverse mortgage system that will provide an alternative to the private sector.”

The Australian government is said to have started preparing to enter the reverse mortgage space in mid-2018.

Regulatory difficulties

The story broadcast by ABC details that a number of new challenges are faced by businesses nationwide in offering reverse mortgage products, which in Australia come without some of the rules and regulations in place in the US product backed by the Federal Housing Administration (FHA).

According to the borrower’s daughter, a borrower highlighted on the 7:30 am newscast “received no independent legal or financial advice” before entering into a loan from the Commonwealth Bank.

Australian ombudsmen found that the Commonwealth had lent irresponsibly in the case highlighted by the televised story. Australian business watchdog ASIC warned in August 2018 that reverse mortgages “should be treated with caution,” which was supported by the Australian Council on Aging (COTA), according to the article.

ASIC recommends that a potential reverse mortgage borrower in Australia “considers getting financial advice” before committing to a reverse mortgage. According to August 2018 report issued by ASIC, borrowers had “a poor understanding of the risks and future costs of their loan”, while adding that “lenders have a clear role to play here and must do more: for almost all loan cases that we examined, the borrower’s long-term needs or financial goals were not sufficiently documented. “

This is of course very different from the financial advice practices for reverse mortgage borrowers in the United States, who must receive legally mandated financial advice from a government approved agency before entering into a value conversion mortgage. residential (HECM).

Response from the main lawyers

According to the Australian financial comparison site CanstarNational Seniors Australia senior executive Basil La Brooy described the idea of ​​lower availability for the country’s reverse mortgage product as “a major disappointment”.

“In general, from my observations, people were pretty sane about this and understood in general terms the implications of the product,” La Brooy told Canstar in a statement.

Australian reverse mortgages are only available to people aged 65 and over. The televised story puts the number of reverse mortgages in Australia at over 23,000, with a total value of A $ 2.5 billion (approximately US $ 1.8 billion).

Watch the original story on ABC Australia.

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