ASIC probe into reverse mortgages
Friday, September 28, 2007/
The Australian Securities and Investments Commission is researching the impact on consumers of reverse mortgages – an increasingly popular way for cash-strapped home owners to draw on the equity in their homes.
ASIC’s chief executive of consumer protection, Greg Tanzer, told The Australian Financial Review that there was inadequate disclosure of costs and risks associated with such products and the Uniform Consumer Credit Code did not mandate disclosure of the general risks associated with reverse mortgages.
A study by Trowbridge Deloitte released earlier this week found the size of reverse mortgage balances grew by 67% in the 12 months to June, to $1.81 billion. In the six months to June the number of loans grew by 13% to 31,544. The average loan size is $52,000 and the average age of borrowers in 73.
The interest rate is higher than a regular home loan and some borrowers have ended up owing more than their house is worth when property prices have fallen.
ASIC’s report will be released within the next two months, and will be used to negotiate with industry about product design. The industry has fought back against critics with a “no negative equity” guarantee so that borrowers never owe more than the house is worth.