Making Lenders Mortgage Insurance (LMI) fully portable could do more harm than good, Genworth Mortgage Insurance's chief executive Ellie Comerford has claimed.
According to Ms Comerford Treasurer Wayne Swan’s proposal to make LMI transferable for borrowers would not work for a couple of 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 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 and/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.”
Ms Comerford said changes to the status quo could result in LMI premium increases for all home buyers due to these regulatory capital requirements.
“LMI has worked incredibly well for many years, so why fix what’s not broken,” she said.
“The fact is, a degree of LMI portability already exists in Australia.”
According to Ms Comerford, refund schedules for LMI are currently in force in the Australian market.
Ms Comerford also said despite arguments to the contrary, LMI is not a deterrent to switching banks.
“LMI does not serve as a barrier to consumer switching lenders. We have helped more 100,000 first home buyers into their properties since the government introduced its FHB incentives. We want to put people into their dream homes, not stop them,” she said.