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BFCSA: Lenders Mortgage Insurance - Many mortgage holders don't even realise it protects the bank, not them.

Posted by on in Bankers A Law Unto Themselves
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Insurance costs through the roof

News Limited writers

Sunday, July 7, 2013

 

PREMIUMS have gone through the roof for the supposed "insurance" that a quarter of all home buyers have to pay when taking out a loan. 

Lenders Mortgage Insurance for a borrower with a typical 10 per cent deposit on a $500,000 property has risen from less than $6000 last year to nearly $9000, a surge of close to 50 per centaccording to brokers Home Loan Experts.  "It is becoming more expensive," said Home Loan Experts senior broker Hank Hong.

LMI has been used in more than two million loans but is poorly understood and is rarely discussed in detail. It is charged whenever a borrower has a deposit of less than 20 per cent. Many of those who pay it don't even realise it protects the bank, not them. 

In August 2011 then Treasurer Wayne Swan announced the introduction of a one-page fact sheet on LMI. Nearly two years on it still isn't in place. It is "close" to being in place, according to the office of Assistant Treasurer David Bradbury.

Incredibly, when it is, it won't even nominate the cost. And it is unlikely to point out that LMI is neither portable nor refundable.  That means any household looking to refinance with another lender faces paying thousands of dollars in LMI for a second time unless they have at least 20 per cent equity in their home. 

Mortgage brokers and consumer groups say this is undermining the Government's efforts to increase competition in the home-loan market because having to pay LMI again makes switching lenders financially unviable.  

"It should be made portable," said Finance Brokers Association of Australia's (FBAA's) president Peter White. And greater disclosure was required, he added. 

Choice spokesman Tom Godfrey said: "Lack of portability around lenders mortgage insurance significantly affects consumers' ability to switch banks.

"Choice would like to see the product reviewed and maybe an option that should be considered is for lenders to refund consumers to make it easier for them to switch." 

Home Loan Experts' LMI premium increase calculations were based on comparing 2012 and 2013 rates for Genworth, one of the two major providers of lenders mortgage insurance in Australia.  When contacted for comment, Genworth said all executives authorised to speak to the media were on holidays. 

Premiums levied by the other big provider, QBE, have also increased considerably. A mortgage broker who asked not to be named for fear of retribution said there had been a 17 per cent increase since 2010. That means a borrower with a 10 per cent deposit on a $500,000 property would pay an $8505 compared to $7290 three years ago. 

QBE would not provide any information on its premium rates. However, a spokeswoman did say premium increases were due to elevated claim levels and higher reinsurance costs, as well as lower investment income. 

The largest home-loan provider in Australia, Commonwealth Bank, said that about a quarter of its loans require LMI. Levels are much higher among first-home buyers. 

A recent survey by broker Mortgage Choice found more than a third had borrowed in excess of 80 per cent of the value of their property. 

It is not known how many homeowners are having to pay LMI a second time. About 180,000 owner-occupied properties have been refinanced in the last 12 months, according to Australian Bureau of Statistics data. Switching levels so far in 2013 are slightly down when compared to 2012, but 28 per cent higher than for the same period in 2009. 

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Comments

  • doyla66
    doyla66 Sunday, 07 July 2013

    Another gangster/bankster ploy to rip off the innocent. Just how much more is the government going to let the Banks control Australia.
    Maybe the big 4 should run for parliament.

  • doyla66
    doyla66 Sunday, 07 July 2013

    I asked for the LMI contract details on a loan.
    No you can't have that, it's for the lender.
    But I was sent a contract details book for the original LMI before Genworth took it over and it says on the loan paperwork we can request this from the Insurer.
    No you still can't have that - it's for the lender.
    But I paid the premium for it.
    No no you can't have it.
    What about the Financial Services Guide and the Product Disclosure Sheet?
    No we won't send you that. We sent that to the lender.
    Isn't that an issue for ASIC as a breach of corporate disclosure?
    Also beware, you can have LMI and the lender can decide you don't deserve it beyond 3 months for reasons of their own!
    Should be 12 months cover under law, as far as I understood.
    Given the LMI is in place as part of securitisation process (pls correct me if I'm wrong) what's the problem with writing off all our loans?
    Insurance companies getting itchy feet over Loan Fraud by their "clients" - the Banks?
    Banks should be paying the premiums not borrowers! After all they also profit from their holdings in the insurance companies ...

  • doyla66
    doyla66 Sunday, 07 July 2013

    My son doesn't give up easily:
    SUCCESS! The offer below by CBA is 10% of the LMI fee paid, rather than the 20% that I believe I was entitled under the Genworth Policy. A slight win though is better than no win at all. I hope this serves others who are with CBA and have paid LMI and paid out their loans in the first or second year.
    From: ***@cba.com.au
    To: ***@hotmail.com
    Date: Fri, 22 Oct 2010 12:32:05 +1100
    Subject: RE: Financial Ombudsman Case #, CBA Case #
    Good Afternoon Mr @@@
    RE: Financial Ombudsman Case #\–@@@
    I am writing regarding your complaint registered with the Financial Ombudsman Service (‘FOS’).
    Thank you for taking the time to speak with me again today. I apologise for the concern this matter has caused you.
    As discussed, the Bank is prepared to offer you the amount of $1,140.00 to resolve your complaint. This offer is made as a gesture of goodwill and without the admission of liability.
    If you wish to accept this offer, please complete and return the attached resolution agreement to me via email or fax on 02 9841 7700 by Friday 29 October 2010. I will arrange for the payment to be credited to your account on the day I receive your signed agreement.
    If you have any questions about this email, or wish to provide additional information about your complaint, please contact me on (02) 9841 6483 (02) 9841 6483, Monday to Friday 9:00am – 5.00pm (AEDST).
    Yours sincerely
    Commonwealth Bank
    Peter Cash
    Customer Experience Manager (Banking & Finance)
    CBA Group Customer Relations
    Level 19, 150 George Street
    Parramatta NSW 2150
    P: (02) 9841 6483 (02) 9841 6483
    F: 1800 028 542
    E: ***@cba.com.au
    Determined to put a smile on Australia’s face. Thanks for helping make us Money magazine’s Bank of the Year.

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