The lack of lenders mortgage insurance (LMI) portability is cited as a bigger problem for homeowners than exit fees.

In its submission to the Senate banking inquiry, the Finance Brokers Association of Australia (FBAA) has attacked the lack of portability of LMI and cites numerous problems with current products.

FBAA National President Peter White told insuranceNEWS.com.au LMI is a product “leveraged against the consumer”.

“It is insurance paid for by the consumer, but the benefits are for the lender,” he said. “There are issues with defaults where if there is a claim paid against the LMI policy, the insurer will go after the borrower to reclaim their losses.”

Mr White says a policy could be in force for up to 25 years, although usually they are much shorter.

“But if a borrower changes their mortgage, then they have to take out a new policy, despite having paid the premiums on the older policy for a number of years.

“Unless it is within the first 24 months of the policy, they receive no rebate of the premiums they have paid.”

According to the FBAA’s submission to the Senate, a $350,000 loan could attract a premium of $8400 a year plus charge sand duties.

Mr White says consumers know very little about lenders mortgage insurance as there are no product disclosure statements issued.

“Consumers don’t know what the product is and this becomes a problem when lenders are trying to refinance for clients,” he said.

In its submission, the FBAA says there is also a lack of disclosure of commissions paid to the lenders and also no commission claw-back if the policy is terminated.

insuranceNEWS.com.au understands there are only two major LMI insurers in Australia – QBE and Genworth Financial. Neither company would comment on the FBAA submission.