Choice welcomes tighter reverse mortgage code
Kieren Dell
Consumer advocacy organisation, Choice has welcomed moves by companies involved in the reverse mortgage sector to tighten its code, particularly relating to the no negative equity guarantee.
Choice senior policy officer Elissa Freman said the new, tighter no negative equity guarantee meant that with reverse mortgages from members of the Senior Australian Equity Release Association of Lenders consumers could never owe more than the sale proceeds of their home.
However, at the same time as welcoming the tighter code of conduct, Choice said there was a need for the better regulation of the brokers and distributors who sold reverse mortgages.
“The introduction of laws to govern the conduct of mortgage brokers selling these products is well overdue,” Freeman said.
She said a Choice shadow shopping exercise held earlier this year had found that the majority of brokers and salespeople recommended borrowing a larger sum than needed and did not talk to customers about alternatives, such as buying a smaller home.
“We want to see the prohibition of trailing commissions paid to advisers selling these products,” Freeman said.
“These commissions grow as the loan grows and encourage advisers to recommend bigger loans than people need.”
SEQUAL released details of its tighter code of conduct early today with its executive director Kieren Dell saying that even if a retiree defaulted on a loan, the no negative equity guarantee would still apply.
“That is powerful protection for borrowers,” he said.
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