Kieren Dell
Consumer protection body Choice has called for an improvement in the standards exhibited by mortgage brokers in regard to the information and advice they are issuing to the public about reverse mortgage products.
The recommendation comes as a result of a shadow shopping exercise by Choice on 10 mortgage brokers and five companies offering reverse mortgage products.
In general, the study found consumers often did not receive enough information to make a truly informed decision about the product.
In particular, Choice found the majority of brokers did not discuss alternative strategies like buying a smaller home, recommended borrowing a larger sum of money than was required, did not properly explain how the no negative equity guarantee worked, didn’t mention the ongoing requirements of the product, and did not fully explain the assumptions contained in the contract.
On a positive note, the consumer watchdog found many brokers advised customers to talk to their children and Centrelink before making a decision, and loan features were generally well explained.
The Senior Australians Equity Release Association of Lenders (Sequal) welcomed the call from Choice.
“Through education, and industry codes and guidelines such as the MFAA Code of Proper Process, we hope to continue to improve consumer protection in this area,” Sequal executive director Kieren Dell said.
As a result of the shadow shop, Choice has suggested the introduction of legislation that will require mortgage lenders to hold a licence and have a dispute resolution scheme in operation, moves Sequal also supports.
One of the more worrying findings of the exercise was the practice of recommending asset lending products when consumers were asking about a reverse mortgage.
Choice found these products were not similar to reverse mortgages and put borrowers in danger of losing their homes as these loans are required to be repaid upon expiry, which did not have to coincide with the selling of the asset through relocation or death.
As such both Choice and Sequal are asking the Australian Securities and Investments Commission to crack down on the practice of recommending asset loans when people want to take out a reverse mortgage.
