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Brokers have backed the FBAA after the association told the federal government the LMI sector is anti-competitive.
The FBAA told the Financial System Inquiry that the sector is dominated by Genworth and QBE, which appear “to discourage any competition in the LMI market”.
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The association also accused LMI providers of “operating in a way that is not transparent and not in the best interests of consumers”.
Intuitive Finance managing director Andrew Mirams said the industry would benefit if other parties were to emerge to challenge the dominance of Genworth and QBE.
“I don’t think the two guys now do a bad job, but they dictate because they set the platform for price,” Mr Mirams told The Adviser.
Noble Financial Services managing director Michael Veitch said a more competitive LMI market would allow brokers to write more loans.
“I try and avoid LMI wherever possible because I think the premiums are prohibitive,” he said.
Mortgage Express’ Queensland general manager, Donna Baden, said borrowers should be able to transfer their policies when switching lenders, provided the LMI provider remained the same.
“The mortgage insurer still holds the premium for the exact same property, so why should there be a new premium?” Ms Baden asked.
Sherlock Holmes Lending Solutions managing director Melanie Burns also said borrowers should be able to transfer their policies – or claim a “fair and reasonable” rebate.
“This rebate also needs to be proactive – that is the borrower should not have to specifically request it, like any other form of insurance,” she said.
Aussie Home Loans franchisee Ross Le Quesne said although LMI had drawbacks, it could also benefit borrowers, particularly first home buyers.
“If you consider the growth in property prices over the past year, the cost of LMI has been much less than what you may have had to save as the additional cost of the property,” he said.
Mr Le Quesne also highlighted the importance of LMI for many investors. “LMI can potentially help investors grow their portfolio a lot faster. Being able to leverage LMI can mean an investor can use their deposit to buy multiple properties which can help them build wealth faster than if they had to put down 20 per cent every time they made a purchase.”
Ballast chief executive Frank Paratore said brokers and borrowers often looked at LMI from the “glass half empty perspective, rather than the glass half full”.
"If the market is dictating that borrowers are saving less, how can they get into a property unless you've got people like the mortgage insurers who are prepared to take the risk?" he said.
The chief executive of QBE LMI, Jenny Boddington, said the insurer regularly reviews its pricing to ensure a stable and reliable provision of LMI across economic cycles.
“Changes to premiums in recent years have mainly been driven by increased regulatory capital requirements and continuing subdued returns on investment portfolios,” she told The Adviser.
Ms Boddington also said that the government had investigated the idea of LMI portability as recently as 2011.
“We note Treasury’s advice not to support the transfer of LMI between lenders, due to the complexity and expense of implementing and administering such a scheme, and confirming the important role LMI plays in the Australian housing market,” she said.
