Reverse mortgage industry under fire from niche banker with axe to grind

Financial planners have come under fire for pushing products such as reverse mortgages for commissions, but a peak industry body says the claim is unfounded.
The reverse mortgage industry body has labelled claims by Members Equity Bank that seniors are at risk from commission-hungry financial planners as unwarranted.
Members Equity Bank head of work business Tony Beck last week warned planners would push reverse mortgages in order to pocket the commission.
"Reverse mortgages combined with salespeople in search of a sales commission is a dangerous mix," he said last week.
[Members Equity Bank are a niche bank grown out of superannuation fund membership, so they naturally have a vested interst in the customer base of the reverse mortgage industry. They seem to be saying that their market base is too stupid to make up their own minds as to the value of a reverse mortgage to them.]
Kieren Dell, executive director at Senior Australians Equity Release Association of Lenders (SEQUAL), hit back, saying the comments are an unfair assumption and that the cost of sale and service is built into the product like many other financial products.
"Any investment service that you might go to see a financial planner (about), you need to understand the remuneration structure, and make sure you have someone you can trust," Mr Dell said.
"The danger seems to me making a statement saying 'don't go to financial planners because they are just going to rip you off', is that people will not go and get advice.
"And certainly from a reverse mortgage point of view, these are products that have complicated outcomes for people, we insist people get legal advice and we strongly encourage people to get (qualified) financial advice."
Reverse mortgages are a popular choice for seniors who are cash-poor looking to "unlock" the equity of their main asset - their home.
It operates the opposite way to a home loan - instead of the loan amount reducing as repayments are made, interest is applied to your loan, which is secured against the house.
Australians who fully own their own home can borrow against the value of their home to create money for their retirement.
A study of the reserve mortgage market by Trowbridge Deloitte found the average loan size of a reverse mortgage was $53,300.
Mr Dell said this meant commissions were very small and unlikely to drive sales, and he was confident about his lenders' conduct and performance.
"One of the parts of our code of conduct for our lenders is that they have to clearly disclose all the fees and charges," he said.
"That is a condition of membership of SEQUEL."
Commissions have been a long-time concern for many people involved in the financial planning business.
The Institute of Chartered Accountants says financial planners should move away from commission-based remuneration and towards a fee system that is more closely linked to the services provided.
Regardless of commissions, reverse mortgages have become increasingly popular, with the number issued doubling in the past 18 months.
SEQUEL estimates the total value of reverse loans written to the 12 months to June 2006 is more than $1.1 billion, and this is expected to surge in coming years as it becomes a more mainstream product for those heading to retirement.
The Australian consumers' association, Choice, said there were some disadvantages as a reverse mortgage could limit financial options.
"You may not have enough money left to fund moving into a retirement village," Choice said.
"The value of your estate may be much less than anticipated because the debt increases over time."
Choice noted that the loan was taken as a lump sum it could affect the eligibility for Centrelink payments.
It also warned consumers to be cautious when signing a contract as they could be hard to interpret.

Source: AAP