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FBAA slams LMI insurers for non-disclosure

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Australian Broker | 15 Apr 2014, 08:44 AM Agree 0
The FBAA has tackled the LMI industry for lacking transparency and taking advantage of uninformed consumers
  • James | 15 Apr 2014, 09:09 AM Agree 0
    Good to see
  • Country Broker | 15 Apr 2014, 09:21 AM Agree 0
    This is a great position to put to the inquiry . It will be interesting to see if they understand and recommend legislation or regulations need to change .
    I have it happens , but would be doubtful of seeing any changes within 3 to 5 years
  • Oscar Hvala | 15 Apr 2014, 09:35 AM Agree 0
    Yes. The LMI companies ( 2 in Australia - QBE and Genworth) have a duopoly and hold all borrowers to ransom. Needs more transparencey and more competition.
  • Denise Brailey BFCSA (Inc) | 15 Apr 2014, 09:38 AM Agree 0
    I am looking after 1262 consumers of mortgage products. Everything the FBAA is saying is true, and we have material suggesting banks were 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 custoerm 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.
  • Regional Broker | 15 Apr 2014, 10:04 AM Agree 0
    Good to see the FBAA raise an issue that has been around for a long time, MFAA does not want to be seen as antagonistic towards their friends....the Banks.
    This issue need to be at the forefront of all discussions going forward, as brokers are just "postman" to their clients as the mortgage insurers and the Banks ran rampant amongst the borrowers and charge at will.
    By the way I am a member of the MFAA,so well done to the FBAA for raising such an important matter.
  • Perth Broker | 15 Apr 2014, 10:33 AM Agree 0
    Full marks to the FBAA for their action in putting this out there. The MFAA have a vested interest in protecting the lenders so we won't hear anything from them! The duopoly of the mortgage insurers QBE and Genworth has to be dismantled and there is an urgent need for more disclosure to the consumers - the borrowers. The fact that LMI is not transferrable between one lender to another is also something which needs to be urgently addressed.
  • Denise Brailey BFCSA (Inc) | 15 Apr 2014, 10:42 AM Agree 0
    MFAA have been useless for years. You never see these stories from them. Too busy lookign after the interests of Lenders - conflicted at times with interests of Brokers I would think.
  • CaptV | 15 Apr 2014, 12:10 PM Agree 0
    Maybe I am just stupid or ill-informed, but I don't think so. I have read all of the historical reasons for establishing LMI and personally I think it is a load of hogwash. Where is the real risk to the lender requiring these outlandish and overpriced policy's. The lender lends to the consumer to purchase a property. At some stage the consumer fails to comply with the terms and conditions and the lender forecloses on the property. The lender sells the property and recoups its outstanding loan amount. Its not like a car loan where the borrower can take off with the goods. The property is a permanent fixture. So really where is the risk and the need to rip the public off with these horrendously overpriced priced LMI premiums. It is hard enough for young people to get into the housing market these days without adding to their burden. Personally, I think it is just another greedy grab for money by the money men. After all what are the links between QBE, Genworth and the lenders. I would hazard a guess that all roads lead to Rome as they say and that somewhere in this global market we live in the profits ultimately go to one source. Fair, equitable, transparent, I don't think so.
  • marty mcdonald | 15 Apr 2014, 12:30 PM Agree 0
    @CaptV you do sound a bit naïve to me. I hate the fact that there is no real competition in LMI but it is an necessary evil because:
    1) No lender would do high LVR loans at comparable interest rates to lower LVR loans without LMI cover. It would be far too systemically risky. You would be looking at a rate loading of + 2%-5% pa depending on the client etc.
    2)You also forget that it's APRA who really wants LMI cover in place and for it to be sufficient cover for a big crash if it ever comes.
    One or more of the big banks going down would be an absolute unimaginable disaster for this country for years and years.

    Be careful what you wish for.
  • Ron Guthrie | 15 Apr 2014, 02:12 PM Agree 0
    Hats off to the FBAA for raising these issues!
    Lenders Mortgage Insurance ( LMI ) used to be known as Mortgage Loss Insurance ( MLI ). This concept was raised by the St George and Cronulla Co-Operative Housing Society in the late 1960's. This Co-Op is now known as the St George Bank. In the early 1970's this Co-Op became a Building Society and lobbied the Federal Labor Whitlam Government to create an Insurance scheme that would allow Buildings Societies to lend up to 95% of the purchase price of a home.The argument was that the Banks would only lend 75% of the purchase price and borrowers needed a 25% saved deposit. The Labor Government was keen to help the Buildings Societies lend to lower income groups that struggled to save a 25% deposit. The Whitlam Labor Government then created the Housing Loans Insurance Corporation Limited ( HLIC ). This insurance scheme owned by the Federal Government became a safety net between Borrower and Lender that allowed home buyers to enter the market with a 5% deposit. The Mortgage Loss Insurance Policy became a form of collateral security for the Lender bridging the traditional deposit gap. The borrowers always paid the premium so it makes sense that they should have ownership that allows them to appoint a beneficiary and change beneficiary when they change Lender. For over two decades Borrowers themselves, thought that they owned the policies and in times of financial hardship they would approach the Lender to see what benefits they had under the Insurance policy, only to be disappointed and be told that this insurance protects the Lender NOT the borrower. The frequency of this event caused the Insurers to change the products name from Mortgage Loss Insurance to what we know today as LENDERS MORTGAGE INSURANCE ( LMI ).
    I salute the FBAA for this initiative and encourage them to bring on more change!!!
  • CaptV | 15 Apr 2014, 04:38 PM Agree 0
    Not that naïve Marty. Lets not forget that APRA is funded by the very industry that it regulates. Sort of like putting the fox in charge of the hen house. You just have to look at the profiles of the Directors and senior management they all come from banking and insurance backgrounds. As for one or more of the big banks going down. They took care of that when they secured government guarantees on their deposits. So I think they would survive quite well even without the LMI. Of course we will never really know the true need for LMI because these figures are not readily available. But I would hazard a guess that the number of claims against LMI policy's would very low
  • Marty McDonald | 16 Apr 2014, 08:17 AM Agree 0
    Will have to agree to disagree there on Apra there Captv. I don't feel the relationship is that cosy at all. I also think you underestimate what a bank collapse would do to our system (regardless of government guarantees). We all would certainly feel it and many brokers businesses would go under for a start. Can't imagine much call for new lending from lenders trying to recapitalise in that environment.
    And you didn't address the higher rates for borrowers without LMI.

  • Michael | 16 Apr 2014, 11:29 PM Agree 0
    FBAA wonderful article. It's apparent that first home buyers are greatly affected by LMI. Look I totally understand the risk involved for lenders here, they are in a business. However, LMI premiums are far too expensive. At the very least if premiums aren't going to reduce there needs to be some sort of portability aspect between lenders. Of course id agree that the MFAA remain silent on this aspect purely because they have an interest purely for the lender and insurer. I must say this has convinced me to leave the MFAA and move to FBAA. Clearly they give a rats about the issue.
  • Denise Brailey BFCSA (Inc) | 05 May 2014, 03:54 PM Agree 0
    Can anyone shed light as to WHEN the RISK FEE became de rigueur to enable banks to self insure against their own fraudulent products? Mortgage insurers never intended to pay out if they found fraudulent incomes on Loan Applications via the service calculator system. Insurers, knowing what was going on, wrote a clause into their policies to reflect there would be no claim if fraud found on the application. Yet lenders adopted a regular exaggerated income and systemic approach to lending. Insurers accepted the business, knowing there could be no payout. Sounds like rigging Libor or NSR's or a horse race to me. Bank on a sure thing. Do shareholders know banks were doing this?
  • Dave Robinson | 06 May 2014, 10:07 AM Agree 0
    Denise Brailey BFCSA (Inc) I tried to run those comments through google translate (not sure they are English) but it couldn't translate them either. :-)
  • Rob Excuses | 16 May 2014, 11:46 AM Agree 0
    Who sells a 95% LVR plus capped LMI plus secured credit card to a first home buyer? The Broker does! Who should be explaining to them about the product they are selling them? The Broker should! If you are not happy with the product don't sell it and if you do sell it then fully explain it to your client. How hard can it be.
  • Denise Brailey BFCSA (Inc) | 19 May 2014, 02:48 PM Agree 0
    The issue is what Lender would see this as a reasonable loan to approve according to S27.1 of The Code? Brokers may be cheeky and send in, and hope. At the end of the day its the Lender who is responsible and has facilities for sensible approval. The Broker has no such skills, nor facilities.
  • marty mcdonald | 19 May 2014, 03:09 PM Agree 0
    Denise you cant have it both ways. You have been carping on about lenders approving loans they shouldn't have for years and now you are giving them a hard time for declining at best marginal applications? Are they unscrupulous crooks or not? And by the way brokers do have the skill and we do have the facilities to make a decision as to the unsuitability of a credit product in fact we are required by legislation to do just that.
  • Denise Brailey BFCSA (Inc) | 20 May 2014, 11:38 AM Agree 0
    Sorry, no intention to offend. Merely saying the onus is and always was on Lenders to ensure the loan was not inappropriate or unaffordable. Brokers cannot check certain things - no facility to do so. After all its the banks customers who are buying their products. The Broker is merely the Agent according to ABOS 2001. It is ASIC and the Banks who tried to manipulate the new NCCP laws to have brokers "share the onus of prudent lending." That leaves the consumer in a worse position of having blame shared on everyone, and each officer/agent is blaming the other. The loan is approved and we have a bigger dogs breakfast of loan approvals. We are on the coalface of the aftermath and see from this height what is happening as an overall consequence of bad laws. ASIC knew this would occur. But it leaves ASIC with the choice - bad loan - who do we blame - law says either, so ASIC naturally chose to fire the bullets at Brokers and leave Lenders as always untouched. Too Easy. Lenders have become the nouveau pensioner pay day lender. Brokers are in fact seeing that happen and are concerned. If Lenders say we will look at skinny deals then all manner of apps will be forthcoming. Its all about who gets the blame and who pays the price. What we see is the banks making huge profits from a defective product, brokers losing commissions due to bank conduct and consumers risk losing their own home. These loans implode within 3-5 years and the industry all but admit that but prefer to say "settled." So much for intended 30 yr commissions. That's a magical furphy. Repeat business? Not from where I see things.
  • Rob Excuses | 20 May 2014, 04:52 PM Agree 0
    Denise, all your saying is everything is the Banks responsibility! Finance Brokers are now considered to be professionals, who have qualified for their current role, continue with on-going training and have the ability both personally and via access to processing systems to assess a clients application and tell them whether it should be approved or not. One of the main statements that the broker gives on an application form is "this loan product is not unsuitable...". If you now want to say that Brokers do not have the ability or inclination to assess their clients applications then you are downgrading them to mere information collectors which is a far cry from the finance professional that both the MFAA & FBAA are pushing to the public and that the majority of Brokers see themselves as. If you want the kudos of being a professional and charging accordingly then accept the responsibility that goes with it
  • Dave Robinson | 21 May 2014, 09:32 AM Agree 0
    Might be prudent to also point out ASIC don't make the laws/legislation they have to police it only. At the end of the day if you apply for a loan, are advised of the payments expected each month/ftn/week and YOU choose to go ahead with it YOU need to take some ownership as well. Things happen which can have a negative impact but that is no reason to blame one person/organisation solely for that situation. We are (as it appears from the new budget) no longer a nanny state.
  • Old Broker | 21 May 2014, 09:56 AM Agree 0
    Have a look at the bath LMI took in the early 70's , lets just say nothing is certain and if it happens again the same will happen. I would not like to insure a loan for 30 years. No thanks I have lost enough money as it is.
  • Denise Brailey BFCSA (Inc) | 21 May 2014, 11:32 AM Agree 0
    In my view, one cannot use the "nanny state" argument as an excuse for imprudent lending which is what has caused our own sub prime lending problem. Those who do so are at risk of being rightly criticized for not seeing the loans for what they really are and care nothing for consumer interests. Parliament did place heavier burden on industry. ASIC had laws under its ASIC Act 2001 and failed to use them. ASIC now has laws to chose whom to blame and naturally they do not take action against banks for approving these loans. Its like the pusher being blamed for the products distributed by the mighty baron. Ah well consumers can only battle on. ASIC is the subject of current Parliamentary Senate Inquiry due to their own inaction and refusing to properly address Senators concerns and questions for over a decade. Consumers are the end users of ASIC excuses for doing little to protect anyone and now they chose to attack Brokers. Its a fact.
  • Denise Brailey BFCSA (Inc) | 21 May 2014, 12:08 PM Agree 0
    I am attempting to bring all parties to the negotiation table. I simply ask that everyone consider the fact that a "manudfacturer" has deliberately manufactured a faulty lending product that is tough for even senators to understand what the mdoel ais as many of the documents have been hidden for years. The sub prime was so clever in the US and oterh countries, few woke up to what the banks were really doing and by the time the infomration started to trickle out, the damage was done. In the US the regulators are blaming professional advisers for "selling" faulty products. Its the intention to deceive on the part of the Lenders that is the most gaulling. I thank you for the discussion. In Australia nothing is different - same product - highly profitable - very expensive and Banks trained internal staff to target ARIPs by saying the product was suitable for that age group yet said nothing about the known consequences.
    If your parents say - we had a loan for 12 months and we were told it was safe and now the bank wish to take our home....what would you do to help them? I am attempting to ask the industry to see things through different coloured glasses. The MFAA knew what was going on as their members of influence were Lenders. The FBAA did not realise until watching the evidence come forward. So we are here, and what do we do about sub prime lending that Lenders say "our lawyers say etc....." ASIC on cue is blaming brokers. BFCSA members blame the banks. The evidence is overwhelming and appalling, hence the calls for Royal Commission into the Banking Sector.
  • Denise Brailey BFCSA (Inc) | 21 May 2014, 12:20 PM Agree 0
    LMI's have a service calculator and only ever see 3 pages of the 11 page Loan App. Their agreements with the Lenders say Insurers will not pay out if there is fraud on the LAF. Agreement with Aggregators state the Lender insists Aggregators underwrite damage if Fraud found on the LAF. 36% of all toxic loans we have discovered were written by Bank Staff - no brokers involved. The LAFs are from our evidence presented to Parliament, are altered using white-out after the 11 page LAF is faxed from broker to bank. All of this evidence needs a proper Royal Commission to have borrowers and brokers telling their side of the story. If not, as in the USA, borrowers will lose homes and brokers will cop the blame via the courts. Had ASIC taken a few bankers and bank staff to court, the entire fraud would have been discovered by the public in 2001. So who do we send this evidence to?
  • Marty McDonald | 21 May 2014, 12:51 PM Agree 0
    Denise I realise your intentions are good but this crisses you refer to was 7 or 8 years ago now. Things have changed not least the removal of no docs, the introduction of the unsuitable test and generally more prudent lending. Some of your members over borrowed in a loose credit environment 7 + years ago and got burnt. Part malpractice on the lenders part and part their own damn fault for over borrowing. You can't legislate against greed or poor decisions. The lending side has been legislated with the NCCP ACT. I know you will disagree but it's time to move on. Statute of limitations is up.
  • Papery | 22 May 2014, 09:13 AM Agree 0
    Nice comment Marty..... time for Denise to give it a rest!
  • Denise Brailey BFCSA (Inc) | 22 May 2014, 02:35 PM Agree 0
    Hi Marty, You are misinformed sadly. ASIC is the usual mis-informer. BFCSA members have loans originated in 2008 and upwards and most are currently with FOS or COSL. I have only 10 members with loans 2005 - 2007. Only one had a NO DOC. These I speak of are Low Docs. We also have complaints coming through the system of 2010 - 2013 Low Doc loans that are now starting to unravel as the buffers and LOCs dry up. I am not inventing this and wish to retire. I am merely stating what we have discovered and investigated and is in line with what I have advised the Senators. I am a criminologist as your know. I know the Lenders are hoping Statute of Lims is up. Problem is Marty no Stat Lims on fraud. So you wish me to move on and leave all these people (1200) to lose their homes? Cases are still within 6 year limits re complaints to the EDRs. I suggest its time for Government to examine just how many of these loans are toxic. So far we show 100% are tampered with after signature and, incomes calculated by service calculator engineered by the big four. So what do we do about that is what I am asking? The NCCP laws have not stopped the calculator being used. Pensioners did not wake up one day and ask for these loans. It was a Lender strategy being touted by BDMs. We have 2000 bank emails to prove that. No Lender executive has yet been charged as yet, but the imprudent loans continue. You cannot blame borrowers for signing three pages and then find out 3 years later 8 other pages were added to the document after they signed to say they had read every page! Which nation allows that to occur, other than the United States & the UK? Are you suggesting we not report this to Parliament or the Police?
  • Marty McDonald | 26 May 2014, 07:59 AM Agree 0
    I just find the whole victim thing a bit hard to swallow. Your response is it's all the banks fault and it's like you are saying these people are 100% incapable of making their own decisions. They signed off on the loan offers? Also what your talking about ....pensioners getting low doc loans post NCCP is not what I have seen available in the market place so there must be elements of serious document fraud above what you are implying ie lenders would not give pensioners loans if they knew they were pensioners!
  • Russell Watson | 26 May 2014, 10:23 AM Agree 0
    If there are 190000 loans approved each year under LMI and we assume a moderate LMI premium of only $2000/loan then the two insurers are taking in $380,000,000 in premiums annually. If the average premium is $5000 then the annual income is $950,000,000
    Who exactly benefits from this? What are the real payouts that Genworth and QBE are making to lenders who have borrowers default under these policies? Should I close down the brokerage and become a mortgage insurer?
  • Denise Brailey BFCSA (Inc) | 27 May 2014, 04:45 AM Agree 0
    Marty, the Banks have been approving loans for pensioners - I have copy documents. All have DOB stated. Selling 30 year loans to plus 60 year olds and over is a little unbalanced I would have thought. So, is predatory lending the fault of the seller or the fault of the manufacturer of the faulty product? We blame the lender for the approval and its refusal to verify the legitimacy and genesis of the fraudulently stated income. The so called borrower would be 106 and still affording mortgage payments? On a Low Doc and interest only loan they would still owe the capital.

    Russell is asking about LMI. I have read agreements - no insurance is available if the insurer finds fraud and forgery on the Loan Application. That clause acknowledges the possible existence of such an event. Its the first thing LM insurer will look for. Yet premium has still been accepted. Borrower has no idea of these clauses and no idea of the fraud, as they are not privy to these agreements. It's all about profit. Insurers use the same service calculator.
  • Denise Brailey BFCSA (Inc) | 27 May 2014, 04:53 AM Agree 0
    I agree, fraud on any documentation is hard to fathom. The truth is more keep landing on my desk each week. The NCCP laws do not stop the activity. The blame lies with the Lenders who profit greatly from acceptance of faulty loans. MY recommendation is that every Broker issue the customer with a full copy of the 11 page Loan Application form the moment the signatures are signed and prior to sending the application to the lender. As I told Parliament....its would stop the practice of imprudent lending dead in its tracks. Often the manipulation of documentation takes placed after the app has been submitted. Fax marks tell the story.
  • Marty McDonald | 27 May 2014, 07:35 AM Agree 0
    Denise, we must be living in a parallel university. The banks do not approve low doc loans for pensioners. You just try and get one through!!! No bloody way. So the ones you are talking about must have blatantly fraudulent income documents. Good old fashioned fraud AGAINST the banks not by them.
  • Denise Brailey BFCSA (Inc) | 27 May 2014, 12:23 PM Agree 0
    Lenders set up the process of no verification of facts. Lenders set up the commission structure. Lenders set up the service calculators and Lenders set up Brokers and Borrowers to take the blame. Lenders intended 30 year loans to implode in 5 years. So why is there not a Royal Commission into how many loans to pensioerns did the banks approve. ASIC admit the Lenders are the engineers. That's not in dispute. Are you saying the Brokers and BDMs all woke up one morning and invented this? The agreements the banks have are with LMI and Aggregators - deliberately to avoid scrutiny. Our files tell us that. 1200 people all agree? That's not systemic? Now ASIC admit yes systemic.....after several pushes in Parliament.
    One day you will see the awful truth bubble to the surface. Remember, the brokers do not know each other and bank to bank neither do the BDMs. BDMs were writing up loans to fill the quotas - under instruction - we have the emails under bank logo. Banks paid everyone. Behind the scnes ASIC does not argue these points. The Lenders all knew each oterh and used same, contracts, lawyers, processing, quotas and penalty fee structure and heavyweight interest. One day we will all see what really was happening. Pensioners are fighting back. Just look what happened in the UK, Spain, Europe, US and (Iceland and are we saying we are immune and our regulatory system is better? Why are all these borrowers asking me for help - from all states? I am just trying to help these people and at the same time tell the industry what we have found collectively. I would imagine industry workers would want to know.
  • Papery | 27 May 2014, 12:47 PM Agree 0 must be a very busy person indeed helping out the seemingly masses of misguided, hard done by borrowers who were & continue to be baited & trapped into taking money from loans they dont not want & cant afford from sinister & greedy Lenders.
  • Marty McDonald | 27 May 2014, 01:02 PM Agree 0
    Will have to agree to disagree Denise. I also suggest you take a closer look at the original motivations of your "victims" and you'll be sure find some answers there in almost all cases. Have you even thought about that for a minute?
  • J Smith | 28 May 2014, 12:41 AM Agree 0
    My lender added a last minute Lenders Risk Fee
    to protect themselves against what? me defaulting? But when I did default I asked Gadens for a copy of the policy but "there is none" At a $6016 capitalised could mean x3 over 30 years, such good business, but was that blatant theft and unjust enrichment? I think so. I am calling on that alleged insurance to cover my default, and extricate myself from the loan, and all should, ideally, be well.
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