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BFCSA: FBAA slams Loan Mortgage Insurers - no transparency and SNEAKY like banks NO SHAME

Posted by on in ROYAL COMMISSION URGENT
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FBAA slams LMI insurers for non-disclosure   by Calida Smylie | 15 Apr 2014  AUSTRALIAN BROKER NEWS

The Finance Brokers Association of Australia believes there is a need for greater transparency and disclosure on behalf of lenders and Lenders Mortgage Insurance insurers to make sure consumers are not being ripped off by having to pay LMI.

The Reserve Bank of Australia estimates more than one quarter of housing loans in Australia are subject to LMI. 

In the financial year ending 30 June 2013, banks made an estimated 761,880 home loans, totalling $247.9 billion in lending, which indicates around 190,470 loans created in that financial year were subject to LMI.

But FBAA said in its submission to the financial services inquiry that there are many issues surrounding LMI, including consumers not being provided with LMI product disclosure statements, including any details regarding any commissions payable to the lender.

“Privity of contract is the apparent reason for this non-disclosure, as LMI essentially is a contract between the LMI provider and the lender, but it is contended that the consumer borrower has an interest in this insurance arrangement as they have paid for it, at the insistence of the lender.”

Consumers are also not provided with the option to choose which LMI insurer would provide the best rate for their loan, so LMI rates and premiums are not standardised throughout the country, FBAA said.

The association recommended an obligation be put on the lender – whose LMI premium is being paid by the borrower – to seek out the best value LMI for the particular loan risk.

FBAA is also concerned that lenders are entitled – in certain circumstances – to a refund of the LMI premium, but this process appears uncertain and from an LMI provider’s position, the responsibility of the lender.

“Lenders and LMI providers are operating in a way that is not transparent and not in the best interests of consumers. This lack of transparency gives rise to the possibility of lenders seeking to take advantage of consumers who are uninformed and unaware to seek refunds.”

The only way issues surrounding LMI can be addressed is for the federal government to investigate lenders and LMI providers to see how much consumer borrowers have suffered financially by not receiving refunds of LMI premiums, suggested FBAA.  

To foster transparency, FBAA said details should be provided of the master policies between lenders and LMI providers, how LMI rates and premiums are calculated and applied, what benefits are received by the lender for writing LMI through the insurer, and the frequency with which borrowers may be entitled to request refunds from their lenders when loans have been repaid, especially when no loss or claim has been made on the LMI provider.

FBAA is also concerned the current system can lead to the lender and the insurer ‘double dipping’ when the consumer borrower is forced to pay for insurance again that is essentially for the same risk when refinancing again within 12 months on the same property.

“The obvious solution which would save consumer borrowers a substantial amount would be to introduce portability so that the LMI policy is in fact owned by the consumer borrower but that, upon a refinance, a different beneficiary of the policy (i.e. the new lender) is substituted.”

http://www.brokernews.com.au/news/breaking-news/fbaa-slams-lmi-insurers-for-nondisclosure-186530.aspx

 

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  • Denise
    Denise Tuesday, 15 April 2014

    BFCSA is looking after 1262 consumers of mortgage products. Everything the FBAA is saying is true, and we have material suggesting banks are underwriting their own insurance but not telling the consumer, yet charging high rates as a pass on "cost." Needs a Royal Commission into banking and insurance. The banks refusing to hand over the "policies." Consumers pay and then are left in the dark like mushrooms. If there is insurer, consumers unaware if a settlement with lender, that they can be then pursued for bank claim to insurer. Agony never ends. We are at the coalface of all the problems listed by FBAA submission. The moment the customer is asked to pay for "insurance" the policy should be sent to consumer. Of course there are no PDS given to customer - no transparency at all. Average cost is $12,000 to insure THE BANK. No rules, no choice, no portability. Not a good look.

  • doyla66
    doyla66 Tuesday, 15 April 2014

    Some LMI Insurers used to send the borrowers a copy of the policy, as a matter of course.
    Now borrowers have to use some heavy handed tactics to get anything out of the Insurers.
    Asking the Lenders for the policy number is met with a "what business is that of yours" attitude. Totally unacceptable.
    We pay the premium to insure the mortgage - that benefits the Bank and the SPV/Trust, potentially making the loan a better proposition for the investors, who gamble on the loan repayment probabilities.
    How are investors going to feel when they learn that some of these investment opportunities didn't even have insurance? How does that sit with the Securitisation Act. And all of those loans are based on fraudulent incomes due to the use of the calculators which boosted the income and did other manipulations to data?
    Every loan is fraudulent - what remains to be seen is how fraudulent and how it was done and what was the intention of those who made it happen. But under the High Court Decision, for those with brokers, and Schmidt-Anor, every loan that was assessed as ok by the Bank's CA and used any calculator set at more than 1:1 ratio (ie. your figures) or tampered with the borrowers supplied data is a fraud loan. That should result in automatic write off.
    Now add a lack of LMI to that fraud loan, where the loan is also proven to be unaffordable, and what do you have?
    Fraud + No Insurance + Unaffordable Lending = JUNK LOAN !!
    Now all we need is FOS to agree and then can rubber stamp these similar cases as write offs.
    Think of the time and effort that would save FOS staff!
    And Australians everywhere could be set free from debt slavery and live happily ever afterwards. :D

    Can anyone hear the jaws dropping at the AOFM and the aggregators, as that fact of life sinks in?

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