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ASIC, in conjunction with Consumer Affairs Victoria (CAV), has released a report examining how lenders and mortgage brokers respond to borrowers experiencing financial difficulties.

The report, Helping home borrowers in financial hardship (REP 152), found that while some lenders are responding well to the needs of their customers, there is generally room for improvement and provides guidance to industry on how to improve practices.

‘This report highlights the importance of industry taking an active role in dealing with hardship’, said ASIC’s Senior Executive Leader, Deposit Takers, Credit and Insurance Providers, Mr Greg Kirk.

‘With forecasts of growing unemployment, we can expect to see increasing numbers of borrowers experiencing mortgage stress. In many cases, however, financial difficulties will be temporary, allowing problems that arise to be resolved.’

‘It’s important that lenders and intermediaries have processes and procedures in place to provide constructive responses to financial hardship. These include procedures to identify customers in hardship, to provide clear and timely information to customers on their right to seek relief, and to engage sufficiently with a customer’s circumstances in order to provide appropriate and flexible assistance’, said Mr Kirk.

The report found that:

• Information about financial hardship is usually only provided following payment default, making it very difficult for borrowers to take positive action at an early stage. Equally concerning, this information is often insufficient for borrowers to understand their options and make informed choices;
• Some lenders do very little to identify borrowers who may require hardship assistance. Many lenders leave this identification of need to collection officers who may not be trained for the purpose eg. one lender only identifies hardship where the borrower raises the need for assistance themselves;
• Lenders appear to prefer offering short-term assistance, such as a three month payment moratorium, rather than genuinely engaging with, and responding to, a borrower’s specific situation. For example, a home loan borrower who has lost income through reduced overtime may need their loan to be extended with lower repayments over a longer period. In such circumstances, a short moratorium is a very temporary fix leaving the borrower likely to default when repayments resume;
• Some lenders have adopted policies that are inconsistent with the rights and remedies available to borrowers under the Uniform Consumer Credit Code. For example, by refusing hardship assistance once payments are more than 60 days overdue or limiting any variation in repayments to a maximum period of six months; and
• Despite clear industry standards mortgage brokers generally have a limited understanding of their role in responding to financial hardship. While most brokers say they offer assistance, there is little evidence of formal policies and procedures to ensure it is done effectively or constructively.

‘This report examined industry practices as at late 2008 and there are already moves within some sectors to improve. On 5 April 2009, the Federal Treasurer announced an agreement with the four major banks wherein they commit to assist borrowers who are experiencing financial difficulty as a result of the global recession’, Mr Kirk said.

‘ASIC is confident industry will welcome the guidance provided by the report, and we’ll continue to work with them to promote better outcomes for borrowers.’

‘Helping home borrowers in financial hardship’ also provides guidance for borrowers. Further information for borrowers is also available on ASIC’s consumer website, FIDO, at www.fido.asic.gov.au.

Victorian borrowers are also encouraged to visit the Consumer Affairs Victoria website (www.consumer.vic.gov.au) for publications that can assist them in dealing with their credit providers. These publications explain the rights and responsibilities of both lenders and borrowers in Victoria.

ASIC has launched a new financial literacy program Your Money Starter- Insurance and Super designed to assist young Australians in making decisions about insurance and superannuation.

It is a resource for secondary schools in each state and territory and is currently being distributed to every high school in the country.

“Young Australians who understand insurance as a way to protect their assets and superannuation as an effective way to save for retirement will get a head start on two key areas of personal finance”, Superannuation and Corporate Law Minister Nick Sherry said

“Your Money Starter includes a variety of innovative classroom materials, activities and multimedia elements designed to make learning about financial services relevant and attractive to teenagers,” ASIC chair Tony D’Aloisio said.

The materials are available in hard copy and on CD-ROM and can be downloaded, free of charge, from ASIC’s consumer website, FIDO, at www.fido.gov.au/yourmoneystarter.

The Minister for Superannuation and Corporate Law, Senator Sherry, has released  draft legislation on the disclosure of covered short sale transactions. Senator Sherry said the Corporations Amendment (Short Selling) Bill has been released in preparation for the possible future removal of the current halt on most types of covered short selling put in place by regulators from 22 September 2008.

Senator Sherry said the draft legislation addresses ambiguity around covered short selling and requires the disclosure of transactions where a seller has entered into a securities lending arrangement to cover a sale.

In particular, covered short sales would have to be disclosed by sellers to a financial services licensee who in turn would be required to disclose the position to the market operator.

Submissions are due by 21 October 2008 and can be sent to: Manager, Market Integrity Unit, Corporations and Financial Services Division, The Treasury, Langton Crescent, Parkes ACT 2600 – or email shortsellingbill@treasury.gov.au.

ASIC has also advised that it has reviewed the operation of the market since its announcements and had opportunity to consult with ASX and industry. ASIC has now issued an advisory which summarises its position regarding the prohibition of naked and covered short selling including permitted exceptions which are in line with overseas developments.

ASIC states that where covered short selling is permitted, the short selling transaction needs to be disclosed in accordance with ASIC Class Order [CO 08/751].

ASIC also notes that the exemptions may change. Accordingly, ASIC will monitor the market to ensure there is no misuse of the exemptions.

Source: Minister for Superannuation and Corporate Law media release No 057, 23 September 2008 ASIC advisory AD 08-22, 23 September 2008

A report capturing the experiences of home-owners with a reverse mortgage has been released by ASIC.

The report, All we have is this house reveals that while the borrowers interviewed were generally satisfied with the reverse mortgages they had taken out, several factors inhibited ‘good consumer decision-making’.

The report identified several factors that have the potential to hinder informed decisions and increase the risk of future problems, including:

* a lack of familiarity with reverse mortgages;
* the complex nature of these financial products and their dissimilarity to other credit products,
* difficulties budgeting for the long-term with access to a large amount of credit, and estimating how much equity might be available at any time in the future;
* a reluctance to consider the risk of declining health in the future and the impact of this on their financial needs; and
* children encouraging their older parents to take out a reverse mortgage or use the funds for the benefit of these children, in inappropriate circumstances.

ASIC’s Executive Director of Consumer Protection, Mr Greg Tanzer said very few of the borrowers interviewed were aware of all the conditions of their loan and the serious consequences of not meeting these obligations.

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