Home Equity Conversion Consultation – High Level Findings

Independent legal and financial advice

The majority of submitters stated it should be mandatory to obtain independent legal and financial advice before taking up a HEC scheme. Some, especially a number of industry players, thought that while legal advice should be mandatory, financial advice should be encouraged but not made mandatory, and some thought it unnecessary. Most respondents thought there needed to be a requirement for certification or written evidence to say advice had been obtained but not necessarily the signing of a waiver.

Lawyers were the most preferred professional for giving independent advice, followed by financial planners and accountants. Whoever provides advice must be independent of the lender and product being sold, knowledgeable about the HEC market and suitably qualified.

Mixed responses were given as to whether costs would be a deterrent. While some people thought that the costs of independent legal and financial advice would put some people off, this was not a strong response. Many commented that regardless of cost it was important to have obtained this advice.

No-negative equity

There was overwhelming support for a no-negative equity guarantee, although a few did not think it necessary, and some industry submitters thought it was only needed for reverse mortgages. While many people thought that alternatives should be explored if a no-negative equity guarantee was not available, many respondents thought it imperative that a no-negative equity guarantee be a component of a HEC scheme.

Breach of terms and conditions by borrowers

Various responses were given for how best to protect borrowers’ interests in instances of breaches of terms and conditions. One of the major areas suggested was to have full disclosure of terms and conditions, particularly information related to breaches and their resolution, included in the disclosure document. This would need to be understood and agreed to from the outset. Having full disclosure is considered likely to reduce the possibility of breaches occurring.

Most respondents thought there should be guidelines for maintenance standards, that these should be drawn up as part of the initial contract and included in any disclosure statement. A few respondents did not think guidelines necessary and thought that HECs should be treated like any other mortgage that does not generally have this as a requirement.

Protection of spouses’ and partners’ residency rights

 Mixed responses were given regarding partners/spouses who are not the property owner being afforded the same level of occupancy protection as the owner, as well as regarding protections applying to new partners/spouses after the loan has been taken out. While the majority of respondents supported protection of occupancy rights for non-owning partners who are known about at the time of the original draw down, only about half supported this protection for new partners.

The question on future spouse’s or partner’s residency rights generated the most divided responses from submitters, and appears to be a particularly complex issue. Many respondents commented that referral to the Property (Relationships) Act was needed along with legal advice for the non-owning spouse or partner. The corporate legal organisation in particular made some important points on this topic, suggesting it would be difficult to fully protect non-owning spouses and partners.

 

Disclosure

Most respondents thought it very important that the HEC documentation illustrates the financial position of the borrower, going forward, and that this should be included in disclosure statements. Some commented that these illustrations should go beyond 15 years and go as far as the average life expectancy for women and men.

Most respondentssupported the use of a standard disclosure template for transparency and comparability purposes, although a few did not think it was necessary as long as full disclosure was made.

Various suggestions were given as to what to should be in a disclosure template, including many of those mentioned in the discussion document. These, plus additional suggestions, will be elaborated on in section three. Many respondents commented that further disclosure is needed for each additional loan.

All respondents thought that information on HEC schemes should include possible effects on benefits and supplementary assistance, or that potential borrowers should be advised to contact Work and Income for an assessment of their individual situation. A number of respondents stated they were opposed to entitlements being effected through the take up of a HEC agreement. Some thought that the legal advice given to potential borrower(s) should cover this area.

 

Cooling-off period

Various time frames were suggested for a cooling-off period, with a large number of respondents’ favouring three weeks or one month. A number of financial industry submitters favoured the approach taken by the Credit Contracts and Consumer Finance Act regarding cooling-off periods. Some respondents suggested that no money be advanced until the end of the cooling-off period.

Sales through financial agents and advisers

Various suggestions were given to the question of sanctions or constraints on advisers and agents selling HEC schemes. These included: registration; industry accreditation and being a member of an approved professional body; training; disclosure of commissions and brokerages; and conflicts of interest. Some respondents thought that only high or mid level intermediaries should be able to sell HEC schemes, and that they should be monitored by independent industry standards and governed by a HEC code of practice.

Relationship to other financial products

Most respondents thought that protections should be in place against undue pressure to buy additional products, and thought one way this could be achieved was by selling one product at a time, and through mandating for compulsory independent legal advice. Some also commented that ancillary products such as adequate insurance need to be considered, but that borrowers needed the freedom to choose a product provider.

Some respondents thought that a code of practice, or existing legislation such as the Fair Trading Act and Consumers Guarantees Act, would offer strong protection. Most financial industry respondents were opposed to restrictions on unrelated products due to stifling of innovation and flexibility.

Advertising

About half of the respondents mentioned existing legislation, such as the Advertising Standards Act, and thought this would be sufficient to cover the advertising of HEC schemes. Some submitters said that advertisements needed to be balanced and point out the benefits, risks and long-term financial implications, rather than the current advertising which they thought was often misleading, guilt inducing or painting a ‘rosy’ picture. A number of respondents also mentioned that advertisements should state that the schemes are subject to compound interest. A few respondents thought advertising should carry no small print, and be clear and easy for older people to understand.

Issues identified in international literature relating to families

Most people responded that it was up to the individual borrower(s) if they chose to involve their families in any discussion about their taking out a HEC scheme, and that issues of privacy and confidentiality were paramount. Although some respondents thought it might be useful to recommend or encourage family discussions, they stated that the choice was for the individual borrower(s) alone to make.

Protection for borrowers

Out of the range of suggestions given, having mandatory independent legal advice was the one most commonly mentioned by respondents. Some thought this might be a safeguard, as it would give potential borrowers an opportunity to discuss any problems or issues with a lawyer.

Transferability of loans to new homes or retirement villages

Most submitters favoured portability of the full equity, including HEC charge, to a new home or retirement village unit, although some thought this a complex area that will need much work. Issues, such as whether retirement villages had independent title, the necessity of ensuring sufficient equity was available, whether the equity in the current home should be paid off first, and that this would change the original contract, were all raised.

Dispute resolution, sanctions and redress

Voluntary or statutory disputes resolution, and arbitration and mediation were the respondents’ preferred way of handling complaints and disputes. Many of the industry players favoured an Ombudsman for financial products, and want to align with the Ministry of Economic Development’s work in this area. Many industry players stated they were against another layer of redress over and above existing industry resolution processes.

Various answers were given on how providers should be sanctioned or penalised for breaches, including loss of licence and registration, fines, referral to a disputes body or being dealt with through normal industry processes. This will be elaborated on in section three.

Most respondents said that HEC schemes should be regulated by a specific body. Some industry players mentioned Safe Home Equity Release Plans Association (SHERPA) and thought they would be the best model. Others did not favour regulation. Some favoured a single regulatory environment for financial sector, not just for HEC schemes.

Changes of ownership of schemes

Most respondents thought that borrowers should be informed in writing or by a new disclosure statement; for instance, where there are changes that have a material impact on their occupancy rights. A number of respondents thought that once the initial contract was drawn up that there should not be anything to affect occupancy rights, and in situations likely to adversely impact on the borrower, changes would need to be agreed to by the borrower.

Protection against provider default or insolvency

The majority of respondents thought that in the case of transfer to a third party or where there was an annuity, scheme insurance should be mandatory for HEC providers of reversion schemes. There was less support for mandatory insurance among the financial industry submitters.

Specific HEC regulation

Stand-alone legislation or a government-led code of practice, were the most favoured options by respondents, with very similar numbers supporting each approach. Some industry respondents did not think there was a need for specific HEC regulation as this would increase compliance costs. Some wanted greater coverage in the Credit Contracts and Consumer Finance Act, and some a voluntary code.

Most respondents thought there should be a requirement for providers of HEC schemes to be registered. Some industry representatives thought this should be in alignment with the MED’s proposals.

Consumer information

There were wide-ranging responses regarding the extent and form of a consumer information programme. Some industry players wanted to help develop and put out joint information with the relevant government agencies.

Many respondents thought that the Retirement Commission, particularly through the ‘Sorted’ website, should be one of the major providers of information on HEC schemes. A number of respondents mentioned that the Office for Senior Citizens/Ministry of Social Development should have a prominent role in the dissemination of information, along with other relevant government departments. Other dissemination channels mentioned included: Age Concern, Grey Power, Citizens Advice Bureaux, libraries, TV coverage, Law Society and the HEC companies.