GREG CARY:
We've talked a little bit in recent times about reverse mortgages, I noticed that Senator Nick Sherry, the Minister for Superannuation and Corporate Law has expressed a few concerns about them. We'll have a talk to the Senator and he'll be joined in a minute by somebody else we have talked to on the program who actually promotes these reverse mortgages. Senator Sherry good morning.
NICK SHERRY:
Good morning, good morning to your listeners.
GREG CARY:
OK you have concerns about these reverse mortgages, what are they?
NICK SHERRY:
Well the regulator, the Commonwealth regulator, ASIC, in a report last year found that unfortunately many consumers were not aware of some aspects and impacts of a reverse mortgage. In some cases, they weren't aware of the fine print, in some cases the ability of the lender to force the house sale and also the fees, charges and commissions. Now it wasn't obviously all reverse mortgages but there were certainly some consumers who weren't aware of those aspects and the long term repayments and the general impact on those individual consumers.
GREG CARY:
In principle, in theory, do you think they're a good idea?
NICK SHERRY:
Well I think if the impact is understood, the repayments are understood and the fees are understood, for those who want to create an income stream from an asset, in this case their own home, it's obviously their call. I think it's good provided they are properly regulated and properly understood.
GREG CARY:
Mmm, as long as it's properly understood. OK, I've got Gerald Grubwinkler on the other line. Gerald Grubwinkler is the director with Reverselink Reverse Mortgages so Senator stay there just a second. Gerald it is good to talk to again, morning. You've heard what the senator has had to say, how do you respond to that?
GERALD GRUBWINKLER:
Ah. Look, I've seen the report in question there and I think one of the other sides of the report was that overwhelmingly the majority of the people who have reverse mortgages are very happy with them. The regulations in place at the moment with reverse mortgages are quite strict. The borrowing limits range from 10 per cent through to 45 per cent, depending on your age, so they can't necessarily borrow the traditional 80 per cent like you could in the normal traditional mortgage sense. Most people are now taking a reverse mortgage as an income stream to supplement the pension as opposed to a lump sum. Ah, you find that from our research and from the amount that we have written is, we found that people do a lot of research before they go ahead with these reverse mortgages, certainly much more than someone taking out a traditional first mortgage or a forward mortgage, I should say. In most cases too, the quality providers of these products will definitely ask them to seek independent financial advice and also will make a phone call that they record asking them several questions as to whether they understand the impact of the interest, do they know what they are doing, etc, so in response to it, most people, all of the people that we've had dealings with, you know certainly thoroughly understand exactly what they're doing when it comes to taking out a reverse mortgage.
GREG CARY:
I just want to touch on this this morning Senator because it something we've talked about on the program and I know a lot of listeners have been interested in. Is what Gerald has just said there satisfactory from your point of view. Does it satisfy your concerns.
NICK SHERRY:
Well some people unfortunately don't understand the impact and I think the point I was making yesterday was that the entry point into reverse mortgages occurs mainly in two ways – one entry point is through a financial planner who is licensed and there is strict oversight of financial planners by the Federal regulator. The other entry point is through mortgage brokers and there isn't the same level of licensing and oversight of mortgages brokers because they are currently regulated by the states, not the Commonwealth. So the issue around reverse mortgages is to have a common standard of oversight, a common standard of licensing by moving the regulation of mortgage broking from state and territory jurisdictions to the Commonwealth, so you'd have a single set of licensing and regulation in the same space of mortgage broking. Of course they're also selling traditional mortgage products for housing loans and the like.
GREG CARY:
I appreciate the point you are trying to make. Gerald how do you respond to that?
GERALD GRUBWINKLER:
In relation to regulation, the mortgage broking industry could probably do with a little bit more but the bottom line is this. For brokers looking at writing reverse mortgages, they must be SEQUAL (industry association) accredited so there are things in place to ensure that the brokers that are writing these loans understand them. So it's not just like being a traditional broker. Most traditional mortgage brokers do not have the skill set nor are they qualified to write reverse mortgages, so the bottom line is if you are looking at a reverse mortgage, you should seek out an appropriate SEQUAL accredited broker.
GREG CARY:
So how popular are they Gerald?
GERALD GRUBWINKLER:
Very popular, they're doubling every year and as the cost of living is increasing, more and more people are looking at other ways of supplementing the pension and they are now starting to realise that their house is just like any other asset such as superannuation that they can call on.
GREG CARY:
That's Gerald Grubwinkler, director of Reverselink. Final words Senator Nick Sherry.
NICK SHERRY:
Well, I think the point is, how would a consumer know whether a mortgage broker they go to in the absence of a national licensing regime is properly licensed in order to sell these products? Unfortunately they don't and the purpose of our reforms is to ensure we do have national licensing so consumers can go to mortgage brokers just as they would go to a financial planner who is licensed so they know that there is both licensing and a proper national consistent regulatory oversight.
GREG CARY:
Appreciate your time this morning.
NICK SHERRY:
Thank you.