FBAA challenges LMI structure

In a letter to the Senate Economics References Committee, Mr White said Lenders Mortgage Insurance is stopping many borrowers from finding a cheaper and better home loan product for their needs.

According to Mr White, under certain conditions LMI should be capable of being portable if the debt size, the supporting security property and the repayments are unchanged.

“One should be able to move the cover across between lenders. This being said any deviation from the original debt being refinanced will vary the insurer’s position and therefore need a formal and separate review,” Mr White said.

“If a variation is accepted by the insurer, the consumer should only incur the cost of the difference between the reviewed premium on the original debt being refinanced less the premium already paid.

“There are issues, of course, that varies the risk to the lender and insurer in portability of LMI, but it should be allowed under the right circumstances.”

At the very least Mr White believes there should be an appropriate refund/rebate based on a premium that covers the bank for a 20, 25 or 30 year loan period if the policy is terminated at any time, and not just a partial refund in the first year sometimes two of the loan if it is asked for.

Mr White’s comments to the Senate come on the back of a new report by ASIC which reviewed Australia’s lenders’ early termination fee structures.

The report, which analysed a broad cross-section of lenders including authorised deposit taking institutions and non-authorised deposit taking institutions, found some institutions which received a rebated mortgage insurance premium had not passed the refund onto the borrower – effectively allowing lenders to pocket more money.

“By analysing their termination fees on a portfolio basis, rather than an individual loan basis, lenders will, in some instances, collect far more money than they are entitled to. We need to launch an inquiry to see how often this is happening and put a stop to it,” he said.