Reverse mortgages legislation comes into play

According to a statement from law firm Gadens, the National Consumer Credit Protection Act has now been ammended to include various regulations that cover reverse mortgages.

Under the new legislation, brokers and lenders who arrange reverse mortgages must now make reasonable enquiries about the borrower’s requirements and objectives in meeting their possible future needs.

In addition, a credit contract will be unsuitable, unless proven otherwise, if the LVR exceeds 15 per cent for borrowers aged 55 or younger, increased by 1 per cent for each year that the youngest borrower is older than 55.

For example, if the youngest borrower is 60, an LVR that exceeds 20 per cent is unsuitable unless the contrary is proved.  

If the youngest borrower is 70 an LVR that exceeds 30 per cent is unsuitable unless the contrary is proved.

Finally, a broker or lender must give borrowers a ‘Reverse Mortgage Information Statement’ before making a credit assessment.  

This document, titled ‘Key Information About Reverse Mortgages’, explains the impact of interest capitalisation on equity in the mortgaged property.

For a comprehensive summary of the new regulations, visit http://www.comlaw.gov.au/Details/F2013L00814