Customers of several large reverse mortgage products could end up losing their home for being late with paying their rates or for forgetting to fill in forms, according to the consumer watchdog.
The accusations were detailed by the Australian Consumers’ Association (ACA) recently in an alert it issued on a number of reverse mortgage contracts from providers including Collins Securities, Macquarie Mortgages, Mariner Retirement Solutions, RESI Mortgage, Royal Guardian Mortgage Corporation and Vision Equity Living.
The association representing the major reverse mortgage providers, Sequal, has responded by defending its members claiming the ACA’s alert “seems to be encouraging senior Australians to live a meagre life rather than having the option of an adequate income”.
The ACA said customers breaching default clauses could end up having to pay their loan back at a higher interest rate, and might be forced to sell their home.
“Reverse mortgages are targeted at elderly homeowners who will use the product until they die. It’s foreseeable that at some point in the future these borrowers may be frail and that a bill for council rates may not be paid on time thus putting the loan into default.”
Macquarie Mortgages replied to the ACA with: “At all times, we will maintain a level of reasonableness when dealing with borrowers in default, as well as taking into consideration any risk associated with the default.”
The ACA has also warned that some no negative equity guarantees — where investors are protected when their house price doesn’t go up, but interest rates do — have limitations written into the fine print of the contract and could even end up offering investors no protection at all.
The findings have prompted the ACA to once again call for tighter regulation of the property market.
Sequal executive director Kieren Dell said that while the ACA had some valid points, most were concerned with non-Sequal members, who, as a condition of entry, must provide a no negative equity guarantee and ensure investors limit borrowing to only a small proportion of the value of their house.
