Heartland business little affected by ban
THE biggest impact on Heartland Group’s Australian reverse mortgage business from Kenneth Hayne’s royal commission is likely to be his recommendation to ban lenders paying mortgage brokers commissions.
Andrew Ford, chief executive of Heartland Seniors Finance, says mortgage brokers are a key part of its distribution network in Australia, accounting for about 70% of its reverse mortgage business in that country.
Australian Treasurer Josh Frydenberg has promised to ban trail commissions — which are paid annually as long as a mortgage remains on a bank’s books — from July 1, 2020. He wants further study on whether upfront commissions should be banned.
Mr Hayne’s recommendation was that all commissions should be banned and that mortgage brokers should charge their clients fees for service instead.
The rest of Heartland’s Australian sales are achieved directly through its website and other marketing efforts.
In New Zealand, hardly any of Heartland’s sales of reverse mortgages — a product that allows people over 65 to draw on the equity in their homes with repayment deferred until either their house is sold or they die — are through mortgage brokers.
Heartland has never paid volumelinked commissions, another practice Mr Hayne wants banned, so ‘‘overall, it’s going to have no real impact on our business here’’, Mr Ford, who is based in Melbourne, said.
‘‘Reverse mortgages are such a specialist niche product that only a few brokers handle them.’’
Heartland is seeing increased demand in Australia for its product, both because the banks have largely withdrawn from the market and because Australia’s population is ageing — more than 20,000 Australians turn 65 every month.
Westpac and Macquarie Bank both withdrew from the Australian reverse mortgage market in late 2017. Commonwealth Bank of Australia and its subsidiary, Bankwest, withdrew from January 1 this year.
The Australian Securities and Investments Commission has singled this part of the market out for greater scrutiny because of the vulnerability of the elderly.
The departure of the banks leaves Heartland as the only active lender in that part of the market. It says it had 19.8% of the outstanding reverse mortgages in the Australian market at June 30 last year, up from 14.9% a year earlier.
In August last year, ASIC told CBA to end its ‘‘tickabox’’ approach to the product when approving new reverse mortgages and it wanted lending standards generally to be improved, including the removal of clauses ASIC deemed had the potential to be unfair.
Nevertheless, ASIC found that all of the 30 borrowers it interviewed were satisfied with the product and it concluded that reverse mortgages ‘‘can help many Australians achieve a better quality of life in retirement’’.
Mr Ford says Heartland made changes to its Australian product after the ASIC report but its decision to introduce a 30day cooling off period last October was not one of them.
Heartland’s New Zealand reverse mortgages have had that feature for some time and introducing it in Australia was part of a process of aligning its practices in both countries.
Mandatory consumer protections applying to reverse mortgages in Australia include getting independent legal advice and customers being advised of other options, including selling their house and downsizing to a smaller one.
While New Zealand does not have such protections, Heartland says it adheres to these requirements in New Zealand. — BusinessDesk