By Zoe Fieding
The Senior Australians Equity Release Association of Lenders (Sequal) has highlighted the difference between reverse mortgage products offered by its members and the fixed-term loan offered by Transcomm Credit Co-operative after the Australian Securities and Investments Commission(ASIC) acted on Transcomm’s “misleading” advertising.
Sequal executive director Kieren Dell said the Transcomm’s Annuity Plus Reverse Mortgage did not meet either Sequal’s or ASIC’s definition of a reverse mortgage or equity release product.
ASIC deputy chairman Jeremy Cooper said unlike most reverse mortgage products, the Transcomm product was a fixed-term loan that meant consumers were likely to have to repay the loan in their lifetime.
He said the product had a number of features that could result in borrowers being disadvantaged.
“The Annuity Plus Reverse Mortgage allows Transcomm to reduce the amounts advanced to borrowers and, in some circumstances, even require early repayment.”
Cooper said it was important that potential borrowers were made aware that this product does not have a no negative equity guarantee.
“This means borrowers may eventually owe more than the value of their property. This is a good example of the need for consumers to understand the product they are considering.”
ASIC accepted enforceable undertakings from Transcomm to correct its advertisements after finding it misled consumers. The advertising included claims the product would have no impact on pension entitlements, offered the most competitive interest rates of any reverse mortgage and lower fees and charges.
The company also claimed that the product had an inbuilt safety measure to guard against “runaway” or “negative equity” and was designed to prevent the final balance owed from exceeding 50 per cent of the estimated future value of the property.
ASIC executive director, enforcement, Jan Redfern said the regulator had acted on its concerns that Transcomm had contravened the consumer protection provisions of the ASIC Act.
“The issue with these sorts of products, which are becoming increasingly popular, is that they will suit some people very well and some people may not want them. The main issue for us is that people understand what the product is about, what it can do for them, and what the benefits are, but also what the negatives are,” she said.
Dell said ASIC’s action against Transcomm demonstrated why consumers should ensure their lender is a member of Sequal before obtaining a reverse mortgage.
“Sequal membership is a badge of quality to reassure seniors that members are committed to ensuring their clients receive all the necessary information on the product and independent legal advice.
“Reverse mortgages are starting to become a mainstream retirement financial planning tool. Sequal will continue to act as a watchdog and advise seniors on what constitutes a quality reverse mortgage,” he said.
