LMI market lacks competition and burdens consumer: HIA

by Calida Smylie16 Apr 2014
The Housing Industry Association has criticised the high cost to consumers and lack of competition within the lenders mortgage insurance market.

“We believe that the inquiry should examine pricing and competition within the LMI market as it lacks a competitive number of suppliers,” said HIA in its submission to the Financial Systems Inquiry.

The cost of the LMI premium can be substantial compared to the size of the loan – in the case of larger home prices involving high LVRs, the LMI premium can amount to almost 5% of the loan value, said HIA.

“The burden of the LMI premium is best captured by estimating the additional payments that result over the lifetime of the mortgage resulting from the LMI being absorbed into the mortgage principal.”

HIA gave an example of the “considerable” increase in mortgage repayments arising from LMI for a 30 year mortgage with 90% LVR at a discounted variable mortgage rate of 5.4%. Total repayments rise by over $6,000 for a $250,000 home and $40,000 on a $1m home.

To combat lack of insurer competition – the LMI market is dominated by Genworth and QBE – and significant prices for consumers, the inquiry should investigate and consider recommending a government-backed mortgage insurance scheme similar to that available in Canada, said HIA.

The Finance Brokers Association of Australia also believes there is a need for greater transparency and disclosure on behalf of LMI insurers and lenders.

FBAA said there are many issues surrounding LMI, such as consumers not being able to transfer their paid-for LMI, and not being provided with LMI product disclosure statements, including any details regarding any commissions payable to 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.


FBAA slams LMI insurers for non-disclosure

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Turn to Canada to solve industry problems


  • by Fair trade Adelaide 16/04/2014 10:34:03 AM

    Legislation was put into place within the Banking Industry to get rid of break costs so a consumer could move their mortgage if it was not competitive, But if the loan is still over the 80% LVR the customer again would have to pay LMI again with the new lender, with the LMI not being transferable there is no competitive situation at all and the consumer has to stay with the lender until they reduce the loan under 80% or Capital growth catches up. This really needs to be looked at if the industry is honest.

  • by Country Broker 16/04/2014 11:24:37 AM

    If all the lobby groups get involved and put the pressure on , it may result in the federal government looking at the problem , until they see it is impacting on First Home Buyers being able to build in particular , there will be no action.

  • by Denise Brailey BFCSA (Inc) 16/04/2014 12:15:44 PM

    Loans are being made by Banks to people who did not even have the deposit. Its all arithmetic. Many of these loans were 97% and advertised as such in emails between banks and brokers. These loans bank approved, knew their customers were going to be hit with an LMI figure of say $12k when there was little or no deposit. This occurred with those who also were qualified for FHOG. WE have the documents - banks still approved 000's of these loans. Yes we agree with Housing Industry Assn. Cost of Insurance was a grand rort ripping off the most vulnerable. Yet was compulsory to Banks being "satisfied." And, Loan M Insurers also used same bank serviceability calculator and banks only sent across to LMI 3 pages of the LAF. Wide spread practice and we have the proof. Consumers had no choice. Something has to change.