On its face, the Australian government’s recent decision to offer a universal reverse mortgage program might seem like a threat to the country’s private lending market. But at least one lender says the move can only raise the product’s profile — perhaps showing a blueprint for how public and proprietary loans can coexist in other environments.
“My view is that it will [be] positive for the reverse mortgages sector and for Heartland,” Andrew Ford, CEO of Australian lender Heartland Seniors Finance, told the trade publication Australian Broker. “It will probably increase awareness, which is probably the biggest competition we have right now — a lack of awareness. It will also provide some legitimacy for the product … to help people live a better retirement.”
Under its 2018 budget plan, the nation expanded its government-sponsored reverse mortgage program to all homeowners aged 65 and older, who can now access up to $11,799 per year for the rest of their lives. The loan-to-value ratio ensures that the balance can’t exceed the eventual sale price of the home, according to news reports, with an interest rate of 5.25%.
As in the United States, Australian reverse mortgage lenders face both a skeptical public and overwhelming demographic trends that would suggest a surge in popularity on the horizon: Ford cited statistics showing that 20,000 Australians turn 65 each month, while also allowing that the vast majority of brokers in the country “haven’t touched a reverse mortgage.”
“Reverse mortgages are a niche product, but it is a growing market,” he told the publication. “What I’d say is reverse mortgages [are] a great way to grow and diversify your business and really add value to your customers.”
That line of thinking should sound familiar to U.S. reverse mortgage players, who have increasingly pitched the Home Equity Conversion Mortgage as a way for forward lenders to weather the drop-off in refinance business as interest rates rise — while also allowing brokers and lenders the ability to serve a wide swath of potential customers.
But while the HECM is government-backed, the products themselves aren’t directly originated by the federal government, so private industry isn’t in competition with the feds. Still, Ford was optimistic that the increased awareness of equity release products would drive consumers to consider the “more flexible” proprietary options that lenders like Heartland offer, including lines of credit and upfront draws.
“Our customers … tend to have a need up front, whether it’s to be refinancing an existing mortgage, whether they want to renovate their home, whether it’s to travel or consolidate debt or medical expenses, upgrade a car — there’s a whole variety of reasons,” he said. “And so they tend to need a lump sum up front.”
Written by Alex Spanko
