Regulations dealing with reverse mortgages were made on 21 May 2013.
The regulation is called the National Consumer Credit Protection Amendment Regulation 2013 (No 2) and a full copy can be accessed here.
The amendments generally commence on 1 June 2013. A summary of the key provisions appears below.
As part of their responsible lending process, brokers and lenders arranging reverse mortgages must make reasonable enquiries about the borrower’s requirements and objectives in meeting possible future needs including:
- possible need for aged care accommodation; and
- whether the borrower prefers to leave equity in the property for the borrower’s estate.
- A credit contract will be unsuitable unless the contrary is proved if the LVR exceeds 15% for borrowers aged 55 or younger, increased by 1% for each year that the youngest borrower is older than 55. For example, if the youngest borrower is 60, an LVR that exceeds 20% is unsuitable unless the contrary is proved. If the youngest borrower is 70 an LVR that exceeds 30% is unsuitable unless the contrary is proved.
Section 133DB of the NCCP Act provides that before making a credit assessment lenders and brokers must:
- show the borrower in person (or give the consumer in a way prescribed by the regulations) projections (calculated using an ASIC approved website); and
give the borrower a copy.
Reg 28LD provides that the projection can be given by mail or e-mail or by another form of electronic communication agreed to by the borrower.
- A broker or lender must give to a borrower a Reverse Mortgage Information Statement specified in Schedule 5A before making a credit assessment and if requested. This document is titled ‘Key Information About Reverse Mortgages’ and explains the impact of interest capitalisation on equity in the mortgaged property. Section 133DC provides that lenders and brokers marketing reverse mortgages who have a website that provides information about reverse mortgages must also display on their website this Reverse Mortgage Information Statement.
- Section18B of the Credit Code provides that if the lender’s credit policy does not allow a person other than the borrower to occupy the property, the borrowers must be given a notice in writing that the contract does not contain a ‘tenancy protection provision’. The regulations prescribe Form 7A for this purpose. This notice must be given before providing a credit service (ie providing credit assistance or acting as an intermediary), and so has a wider application that many requirements which relate to providing credit assistance and so do not apply to intermediaries. For example, intermediaries as distinct from create assistants do not need to give Credit Guides. An intermediary is a person who in the course of, as part of, or incidentally to, a business acts as an intermediary (whether directly or indirectly) between a credit provider and a borrower for the purpose of obtaining credit for the borrower.
The ‘Enhancement Act’ provisions relating to reverse mortgages generally commenced on 1 March 2013. Those provisions provided for a number of initiatives including:
- a no negative equity guarantee
- extra requirements for enforcement
- provisions dealing with cohabitants (people living with the borrower)
- limitation on the kind of default events.