Complaints to the Credit Ombudsman regarding lenders mortgage insurance (LMI) have tripled in the past year, and industry bodies are calling for an overhaul of the product.
According to COSL’s latest report on operations, 58 complaints were received regarding LMI providers in the last financial year. In the two years prior 20 complaints were received each year. The overall percentage of total complaints which relate to LMI has also doubled in the last three years, according to the report.
president, Peter White
, says the majority of consumers are unaware of what LMI truly is and that the product needs “major reforms”.
“People are forking over thousands for this with very little information on what it does. Most people have no idea, others will tell you it protects the bank. If you start telling people that the lender can chase you for any shortfall people are very surprised.”
And the sentiment appears to be reflected in the complaints received by COSL.
“Where a loan is not fully repaid from the proceeds of the sale of the security property and the lender makes a claim on its mortgage insurance policy for the shortfall, the right to recover the shortfall is generally assigned to the lenders’ mortgage insurance provider,” reads the report.
“Complaints about lenders’ mortgage insurance providers generally arise when they attempt to recover the shortfall from the consumer.
“The most common complaint relates to the consumer disputing the debt or the amount of the debt (24%). This is followed by a claim about the original credit provider’s conduct (14%).”
While White stresses he supports LMI as a product and would not like to see it discontinued, “fair and honest disclosure” is crucial for consumers.
One-page mandatory disclosure documents will be introduced for LMI next year, which will go some way towards remedying the problem, says White.
But there are still a number of issues surrounding LMI, says White, including the labelling of it as insurance.
“I feel the term lenders mortgage insurance is misleading and potentially deceptive. If I took out any form insurance I would have to sign for it or have a recorded verbal agreement and I would have a cooling off period.
“They call it insurance and charge stamp duty but technically it’s not insurance, it doesn’t work the same and there is no disclosure. The fact sheets next year have been purely brought about by the FBAA
pushing for disclosure but we want portability and we want appropriate and fair rebates which I don’t believe are being paid today.”