ABC’s 7.30 Report last night ran an interesting segment examining lender’s mortgage insurance (LMI), which is insurance that is typically paid by home buyers when they take out a mortgage with a loan-to-value ration (LVR) of more than 80%, and protects the lender in the event that the borrower defaults, the home is sold, and there is still an outstanding balance owing.
The segment looks at the pitfalls of LMI and what can happen to borrowers when events turn sour. It also shows that a reform push is underway by the Australian mortgage brokers lobby, who wants the government to step in and force lenders to supply all new home buyers with a clear explanation of how LMI works.
DFA’s Martin North is featured in the segment with the following warning:
“Once property prices begin to slip, then more people get into difficulty – they try and sell, they can’t sell – then they actually default. And at the point of default is of coarse the point when LMI will be triggered”.
The segment is well worth your time.
