Echoing decisions among several large U.S. banks that decided to exit the reverse mortgage business in recent years, a number of banks in Australia are now doing the same, including the nation’s largest lender, the Commonwealth Bank. This may prove to pave the way for the Australian government to enter the fray with a low-cost public alternative to the dwindling offerings in the private sector, according to reports from local business news and television outlets.
Commonwealth will cease offering reverse mortgages after receiving criticism from the Australian Securities and Investments Commission (ASIC), according to a story filed by reporter Amy Bainbridge for the Australian Broadcasting Corporation (ABC) program “7.30.”
Private exit(s), public alternative
A prominent Australian financial comparison site – similar to Bankrate in the United States – confirms that the Commonwealth reverse mortgage offering will cease in 2019, which has upset one of the country’s most prominent senior advocacy organizations.
Additionally, Australian Financial Review (AFR) also confirmed that another bank local to the nation, Bankwest, withdrew from offering reverse mortgage products, making them, “the last of [Australia’s] major lenders to pull out of the $3.1 billion sector amid rising costs and tougher regulation,” AFR said. Existing reverse mortgage borrowers will continue to be serviced by Bankwest, however, but the bank will no longer take on new borrowers. Bankwest has been a subsidiary of Commonwealth since 2008.
Interestingly, AFR notes that while smaller lenders will continue to remain a source for reverse mortgages, Australia’s federal government may itself choose to fill the new void created by these large exits.
“[Commonwealth] and Bankwest’s decision to quit new lending means reverse mortgages are now only being offered by smaller lenders, such as Heartlands Seniors’ Finance, IMB Bank and P&N Bank,” AFR notes. “The federal government is expected to enter the market with a low-cost reverse mortgage scheme that will provide an alternative to the private sector.”
The Australian government reportedly began preparing to enter the reverse mortgage space in mid-2018.
The story broadcast by ABC details that a number of new difficulties are being faced by the nation’s firms in offering reverse mortgage products, which in Australia come without some of the governing rules and regulations found in the American product backed by the Federal Housing Administration (FHA).
One borrower highlighted in the 7.30 newscast reportedly “received no independent legal or financial advice” before closing a loan taken out with Commonwealth Bank, according to the borrower’s daughter.
Australian ombudsmen found that Commonwealth had lended irresponsibly in the televised story’s highlighted case. Australian corporate watchdog ASIC warned in August of 2018 that reverse mortgages, “should be treated with caution,” which was supported by the Australian Council on the Ageing (COTA), according to the story.
ASIC recommends that a potential reverse mortgage borrower in Australia “consider getting financial advice” before committing to a reverse mortgage. According to an August 2018 report issued by ASIC, borrowers had “a poor understanding of the risks and future costs of their loan,” while adding that “lenders have a clear role to play here and need to do more: for nearly all of the loan files we reviewed, the borrower’s long term needs or financial objectives were not adequately documented.”
This is, of course, far different from practices concerning financial counseling for reverse mortgage borrowers in the United States, who must receive financial counseling mandated by law from a government-approved agency before closing a Home Equity Conversion Mortgage (HECM).
Response from senior advocates
According to Australian financial comparison site Canstar, National Seniors Australia senior officer Basil La Brooy described the idea of less availability for the country’s reverse mortgage product as “a major disappointment.”
“Generally, from my observations, people were pretty sensible about it and understood in broad terms the implications of the product,” La Brooy told Canstar in a statement.
Australian reverse mortgages are offered only to people age 65 and over. The televised story places the number of reverse mortgages in Australia at more than 23,000, worth a total of $2.5 billion AUD (roughly $1.8 billion USD).
Watch the original story at ABC Australia.