The Australian Consumers’ Association (ACA) has echoed the sentiments of the Australian Securities and Investments Commission (ASIC) by calling for tighter controls over the mortgage broking industry in light of the proliferation and growing popularity of equity release products, including reverse mortgages.
In response to ASIC’s recently published report on equity release products the ACA has called on the Federal Government to review the Uniform Consumer Credit Code to allow it to include reverse mortgages in its coverage, and to accelerate the introduction of regulations for mortgage brokers, the primary sellers of these products.
The ASIC report identified several potential problems with equity release schemes including consumer vulnerability to interest rate rises, the possibility of negative equity, and certain terms and conditions associated with the offerings that trigger immediate loan repayment.
A further study of 290 mortgage brokers undertaken by the regulator also found levels of commission predominantly determined their product recommendations.
“We need to understand that these schemes target the most vulnerable consumers, because they are tailored to consumers with constrained financial circumstances but own their own home,” ACA senior policy officer Dr Nick Coates said.
“Considering the extensive mis-selling practices overseas we believe a self regulation scheme is inadequate and will just lead to problems and a loss of consumer confidence,” Coates added.
ASIC is already conducting an ongoing investigation into failed equity release scheme Money for Living. As part of its investigation the regulator found the proprietors of the scheme made false and misleading representations to vendors who sold their homes under the scheme.
The latest development in the investigation has seen the regulator obtain orders in the Federal Court preventing the promoters of the scheme, Stephen and Gary O’Neill, from leaving Australia and requiring them to surrender their passports to ASIC.
These orders will remain in place until December 16, 2005.
However, the reverse mortgage market continues to expand with IOOF now entering a partnership with Australian Seniors Finance (ASF) that will see the fund manager distribute ASF’s reverse mortgage product, Lifetime Loan, through dealer group Winchcombe Carson and a small number of private client advisers.
