Monday 4 June 2007 LAWFUEL – The Law Newswire – As reverse mortgages grow increasingly popular with older Australians, the Australian Securities and Investments Commission (ASIC) has conducted a review and urged the promoters of reverse mortgages to ensure their advertising and promotional material is clear and not misleading. ASIC found five cases of misleading advertisements that made claims suggesting that reverse mortgages did not need to be repaid.
ASIC raised these concerns with the promoters of the advertisements. In each case the promoter took immediate steps to either withdraw or amend their advertising. The statements used in the advertisements included ‘There are no repayments’, ‘…no loan repayments ever’ and ‘No need to make repayments!!’.
Although reverse mortgages do not usually require the borrower to make regular repayments, they certainly require repayment. Typically, a reverse mortgage will need to be repaid when the home is sold or no longer occupied. ASIC also identified a potentially misleading claim regarding the impact of a reverse mortgage on pension entitlements which read, ‘Centrelink payments aren’t affected’. ASIC considered that this claim could be misleading as taking out a reverse mortgage may affect a consumer’s Centrelink payments, depending on their individual circumstances and how they use the money they receive. ‘Reverse mortgages are complex products and ASIC wants to ensure that consumers are responding to promotions for them for the right reasons’, ASIC’s Executive Director of Consumer Protection, Mr Greg Tanzer said.
‘The reverse mortgage market has more than doubled in the last 12 months and ASIC continues to be vigilant to ensure consumers are not misled’, Mr Tanzer said. Background Reverse mortgages allow people to borrow money against the value of their home. Usually borrowers don’t have to make regular repayments until the home is sold or it is no longer occupied. When the loan ends the borrower, or the estate, must repay what is owing, usually out of the proceeds of the sale of the home. Each year the fees and interest ordinarily paid are added to the loan balance. Over time, the borrower is charged interest on the interest, referred to as ‘compound interest’, and that builds up the total amount owed.
In March 2006, ASIC accepted an enforceable undertaking from a reverse mortgage provider in relation to several misleading statements made when promoting their reverse mortgage product. To assist consumers who are considering a reverse mortgage, ASIC last year launched a reverse mortgage calculator on its consumer website FIDO. The reverse mortgage calculator allows users to see how the debt may build up over time dependent upon a variety of factors such as how much is borrowed, how long it is borrow for, interest rates, and so on. FIDO also contains a lot of useful information for consumers on reverse mortgages including factsheets, tips on what to consider and look out for and questions to ask before you commit to one. Visit www.fido.gov.au/equityrelease For further information contact: Mr Greg Tanzer Executive Director, Consumer Protection Telephone: 07 3867 4704 Mobile: 0411 549 144 Danielle Huck ASIC Media Unit Telephone: 03 9280 3407 Mobile: 0417 540 769