LMI Rebate?

[Peter_Tersteeg]

From this document, it looks as though LMI is refunded if the loan is discharged within 2 years (ie. from sale). Am I reading that correctly?

If so, I've got a question for Brady. Does CBA's "Low Deposit Premium" have a similar refund?

I did manage to get a refund for a client once, I think it was back in 2005.

Since then I haven't managed to do it again or heard of similar. A few lenders even let it be known that whilst the insurer may give a refund, they wouldn't pass it onto the borrower.

I don't believe CBAs LDP has a refund either, but to be fair, I can't think of a recent occasion where it would have been worth asking.

It would be great if LMI was refunded, especially after its been claimed as a tax deduction lol,

That would be nice. Even better, you should declare the refund of the LMI premium!

 

[bez23]

I heard that for some banks, the LMI credit expire after 1 year!

 

[Marty McDonald]

Lmi is a joke! QBE looking to float this part of their business as is so profitable. Genworth likewise announced a while back 50% odd increase in profits. This is on the back of 50% increases to their premiums rates since 2009.

Meanwhile many first (and second) time borrowers are forced to look to borrow above 90% as prices skyrocket in sydbey in particular. So high lvr and large loan amounts and the borrower is getting absolutely hammered with 4.5% premiums. Robbery.

 

[Brady]

Lmi is a joke! QBE looking to float this part of their business as is so profitable. Genworth likewise announced a while back 50% odd increase in profits. This is on the back of 50% increases to their premiums rates since 2009.

Meanwhile many first (and second) time borrowers are forced to look to borrow above 90% as prices skyrocket in sydbey in particular. So high lvr and large loan amounts and the borrower is getting absolutely hammered with 4.5% premiums. Robbery.

Robbery. People don't have to take LMI out, they can opt to save more. Yes prices are high, but from my understanding it's all relative. Mortgage insurers are a business, you can't blame them for wanting to make profit.

 

[Brady]

From this document, it looks as though LMI is refunded if the loan is discharged within 2 years (ie. from sale). Am I reading that correctly?

If so, I've got a question for Brady. Does CBA's "Low Deposit Premium" have a similar refund?

The Bank automatically notifies the mortgage insurer when an LMI insured loan is repaid.

For LMI policies established prior to 25 July 2008, the mortgage insurer determines if a refund of premium is payable, and if applicable will send a refund directly to the customer within 6 weeks of being notified of the cancellation.

No refund is payable if:

-the LMI policy was established on or after 25 July 2008
-the loan was a $0 deposit home loan (identified by LMI policy numbers from 90046000 to 90055999 inclusive)
-the loan is not discharged in full from the Bank
-the loan is repaid in the final year of the original loan term
-the amount payable is less than $150
-a loss has eventuated
-the loan has been reported to have had arrears.

Period from date of premium payment to date when loan was repaid in full
Refund of premium payable on repayment of loan
-1 year or less 40%
-Over 1 year to 2 years 20%


Above refers to old polcies in place. Nothing on LDP.

 

[VaSSagO]

I got $4.5k (50%) LMI back on our first purchase back in 2006. Refinanced with another bank within 3-4 months.

Was a pain in the butt to do, took about 6 months from memory and constant harassing the LMI insurer.

 

[Marty McDonald]

Robbery. People don't have to take LMI out, they can opt to save more. Yes prices are high, but from my understanding it's all relative. Mortgage insurers are a business, you can't blame them for wanting to make profit.

No they don't have to take LMI and not everyone deserves a home loan etc but do you do realise the average house in Sydney is about $850K? So you need about $100k deposit saved just to get into an average house. Wages are a only marginally higher than some other places in the country but not as high as Canberra for example.

I don't mind a business making a profit (heck I even try to myself!) but when we are talking a duopoly controlled by an oligopoly that is able to raise prices by 50% without any push back from its customers (the lenders) it does ***** me. Rip off.

 

[Brady]

People need to live within there means. Looking at my facebook during lunch saw around 7 young couples (seperate group) I know all in Bali at the moment holidaying. Most of them have also recently said how they're saving for a house or have recently purchase (with LMI/difficulties).

Now I know that Bali is cheap, but it's still around $2k all up for week per person. And yes everyone should go on holidays... but is it the time for holidays? Same thing happens, mobile phones, tablets, foxtel, eating out etc.

I know when I was younger parents didn't have foxtel (til around 15years old), we didn't holiday often (usually between transfer for Dads work), parents didn't buy me a phone and I had to pay the bill when I got one. My parents didnt' buy a house til they had a sufficent deposit.

I know this isn't any longer the norm, but to blame a company don't think so. If you don't want the product, don't buy it.

Not really push back from the banks, they just jumped on board offering cheaper in house insurance. And you're spot on it's a duopoly, makes it tough.

 

[tobe]

People need to live within there means. Looking at my facebook during lunch saw around 7 young couples (seperate group) I know all in Bali at the moment holidaying. Most of them have also recently said how they're saving for a house or have recently purchase (with LMI/difficulties).

Now I know that Bali is cheap, but it's still around $2k all up for week per person. And yes everyone should go on holidays... but is it the time for holidays? Same thing happens, mobile phones, tablets, foxtel, eating out etc.

I know when I was younger parents didn't have foxtel (til around 15years old), we didn't holiday often (usually between transfer for Dads work), parents didn't buy me a phone and I had to pay the bill when I got one. My parents didnt' buy a house til they had a sufficent deposit.

I know this isn't any longer the norm, but to blame a company don't think so. If you don't want the product, don't buy it.

Not really push back from the banks, they just jumped on board offering cheaper in house insurance. And you're spot on it's a duopoly, makes it tough.

hmm, maybe, but when there are only two providers, and the cost they charge are obviously well outside the costs of the service, perhaps it actually is a little bit of highway robbery.

Id be much more comfortable if there were multiple providers, or at least 4, like the banks..... Actually, there might not be enough banks either.....

 

[Peter_Tersteeg]

The problem I have with LMI is how expensive it is. Over the past 10 years, LMI premiums as a percentage of the loan amounts have doubled.

Default rates during that period have fluctuated but essentially stayed the same. The insurers risk can also be managed by having additional LVR restrictions on postcodes (which they already do) and via credit scoring (which they also do).

The increase in loan amounts over time is a moot point because LMI is charged as a percentage of the loan amount. The problem is that the percentage has gone up.

The reason the CBA have their LDP, ING has REF and several other lenders also have their own internal insurance is because in the low risk sectors it's because hugely profitable for them.

I'm generally of the opinion that if insurance companies are crying poor, it's because they didn't properly manage their own risk internally. LMI and most other forms of insurance is a license to print money.

 

[Brady]

Agreed insurance/banking both licence to print money if managed well.

You have what people want, what most need.

And to top it off not huge amount of competition.

 

[Paul@PFI]

It would be great if LMI was refunded, especially after its been claimed as a tax deduction lol,

If the premium is deductible any refund would be an assessable amount. And not over 5 years either

 

[Paul@PFI]

I'm generally of the opinion that if insurance companies are crying poor, it's because they didn't properly manage their own risk internally. LMI and most other forms of insurance is a license to print money.

Yes...100% with you. LMI is a BS insurance. The lender forces a borrower to take insurance that merely pays the LENDER if the value of the property doesn't cover the loan. In such a case the insurer then seek recovery of their loss from...the borrower. So the borrower may have paid a premium AND then still has to meet 100% of any loss.

They make money cause technically unless you are unemployed and have zero assets and no prospect to generate income they will recover 100% of the claim payout for the person who pays the premium.... Its a scam.

Car dealers have similar policy options...All part of their package of scams.

 

[Peter_Tersteeg]

I did some beer coaster maths once on LMI considering a number of figures (these are all speculative but the question marks indicate wild speculation on my part, the rest are somewhat supportable).

Average property value = $400k
Average LMI loan amount = $360k ???
Average premium collected (2%) = $7,200

National average default rate = 3% (let's assume it applies to LMI and non LMI loans equally).
Percentage of default loans where costs can't be recovered = 10% ???

Percentage of property value that can't be recovered = 5% ???
Value of per property that can't be recovered = $400k x 5% = $20k

From these figures, on any one property they collect about $7,200 in premiums.

On any given property, 3% default, 10% end up in LMI claims, 5% of the property value is claimed:
Amount paid out per property = 3% x 5% x $20,000 = $30

Essentially they collect $7,200 to pay back $30.


If we assume my figures are out by 50% (double or half where appropriate)
They collect $3,600 per property.
They pay out 6% in default, 20% are LMI claims and 10% of the property value is claimed (there is nothing to indicate figures this high):
Amount paid out per property = 6% x 20% x $40,000 = $480


Clearly I've messed something up. The figures can't be that good!

 

[Brady]

Even if I've totally messed up my assumptions and then you factor in profit margins and other costs, we're all in the wrong business...

Then why only 2 in Australia, why doesn't any other insurer jump in this space?


Maybe we should all leave what we're doing and have SS LMI

 

[Marty McDonald]

I did some beer coaster maths once on LMI considering a number of figures (these are all speculative but the question marks indicate wild speculation on my part, the rest are somewhat supportable).

Average property value = $400k
Average LMI loan amount = $360k ???
Average premium collected (2%) = $7,200

National average default rate = 3% (let's assume it applies to LMI and non LMI loans equally).
Percentage of default loans where costs can't be recovered = 10% ???

Percentage of property value that can't be recovered = 5% ???
Value of per property that can't be recovered = $400k x 5% = $20k

From these figures, on any one property they collect about $7,200 in premiums.

On any given property, 3% default, 10% end up in LMI claims, 5% of the property value is claimed:
Amount paid out per property = 3% x 5% x $20,000 = $30

Essentially they collect $7,200 to pay back $30.


If we assume my figures are out by 50% (double or half where appropriate)
They collect $3,600 per property.
They pay out 6% in default, 20% are LMI claims and 10% of the property value is claimed (there is nothing to indicate figures this high):
Amount paid out per property = 6% x 20% x $40,000 = $480


Even if I've totally messed up my assumptions and then you factor in profit margins and other costs, we're all in the wrong business...

Nice Pete.

They are wildly profitable. Last reporting period genworth reported loss ratio of 19.6 per cent. In plain English that means they have a profit margin of 80%.

From Wikipedia...For insurance, the loss ratio is the ratio of total losses incurred (paid and reserved) in claims plus adjustment expenses divided by the total premiums earned.[1] For example, if an insurance company pays $60 in claims for every $100 in collected premiums, then its loss ratio is 60% with a profit ratio/margin of 40% or $40.

http://www.smh.com.au/business/bank...ter-listing-20140730-zyf0p.html#ixzz3AuZ2Cjl7

 

[Peter_Tersteeg]

Let's face it:

* Default rates are rarely more than 4%.
* Property values generally don't fall over 20%. The insurers rarely touch the areas where they is any risk of this (CBA may not have postcode restrictions, but the credit scoring system still considers Cat 4 & 5 locations).

Even if you factor in $20k in recovery costs ($20k x 4% to average it out across the market), there's still a very, very nice margin in it.

Insurance in general has a lot of additional risk mitigation going on behind the scenes, you can't get into it without a huge amount of upfront capital and support from other financial institutions who are essentially competitors.

The reason there's only 2 real providers in this space is because they've eaten most of their competitors or locked them out. Most of the other groups in this space are the non-conforming lenders who self insurer via private investors and aren't competing with the mainstream markets anyway.

The CBA's LDP (low deposit premium) basically kicks in where the CBA has identified a low risk deal and the decide to self insure. CBA becomes the LMI provider instead of Genworth. They obviously see the profit in it, as do other lenders.

 

[Brady]

Without a doubt, the self insurering is a gravy train. <85% LVR in most cases cat 1/2. The actual risk and default rate of these would be soooo low. From memory the default rate for cat 1 is <1%

 

[Marty McDonald]

The default rate across the industry is less than 0.5% & that includes all the low lvr's out there. Average lvr is around 70% at origination so systemically lvr average would be 50% or less.

The insurers must watch out for systemic risk though tongue firmly in cheek.

 

[Rolf Latham]

Then why only 2 in Australia, why doesn't any other insurer jump in this space?


Maybe we should all leave what we're doing and have SS LMI

capital adequacy

ta
rolf