Australian Property News

Debate over making mortgage insurance portable

Posted on Thursday, March 24 2011 at 4:17 PM

Making lenders mortgage insurance (LMI) fully portable could do more harm than good, Genworth's chief executive Ellie Comerford has told The Adviser.

She's told The Adviser that Treasurer Wayne Swan's proposal to make LMI transferable for borrowers won't work for numerous reasons.

"While nothing is impossible, we are regulated by the Australian Prudential Regulation Authority and they require us to hold capital on each loan. If a borrower was to refinance their whole loan dollar for dollar and retain the same loan to value ration (LVR), we would have no problem making LMI fully portable," she said.

"However, this is rarely the case. Often borrowers refinance for more than the original loan or take out a higher LVR, which changes the risk profile of the loan. When the risk profile changes, we are required to hold capital against the loan.”

Comerford also told The Adviser changes to the status quo could result in LMI premium increases for all homebuyers.

“LMI has worked incredibly well for many years, so why fix what’s not broken?

“The fact is, a degree of LMI portability already exists in Australia.

“LMI doesn’t serve as a barrier to consumers switching lenders. We have helped more than 100,000 first homebuyers into their properties since the government introduced its first homebuyers incentives. We want to put people into their dream homes, not stop them.”

However, Brisbane Property Brokers’ Mark Illingworth disagrees with Comerford’s statements.

In fact, he says Swan should be applauded for trying to abolish the double handling of mortgage insurance and LMI is in fact a huge barrier to consumers switching lenders.

"The finance industry has become more rigid over the last two years due to the global financial crisis,”"he says.

"The real estate industry is experiencing more problems now with more banks tightening up the lending criteria, once the LVRs are greater than 80 per cent, and the result is that when you switch loans you have to reapply all over again. Any discussions allowing transferable mortgage lending among the banking industry would be welcomed by the real estate industry."

Illingworth adds he isn’t aware of any portability rules.

"What Wayne Swan is saying is that if we have in place an existing mortgage insurance and you refinance and go through another bank, that mortgage insurance is already in place, so why should borrowers have to go through all the hoops again?"