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BFCSA: Loan Mortgage Insurance Scam and LVR skewed by unnamed offshore bank; permitted to operate in Australia by APRA.

Posted by on in Consumer Protection Disaster
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WARNING : Pssst... The RISK fee is a scam and it stinks!  

It intends to push vulnerable people into unaffordable loans. 

Do not sign mortgages of this type – seek legal advice as to why not 

The following is extracted from a Brokers website with my comments and highlights added. 

Reference to this web link is available on request.  Comments are based on BFCSA Members TRUE experiences ! 

Risk Fee 

Mortgage & Home Loan Risk Fee instead of LMI  are unique with several lenders in Australia. The lenders who implement Risk Fees instead of LMI do so knowing they have a unique product where they can offer cheaper entry costs to a mortgage home loan, and save on the costs of LMI  to the borrower. 

Comment: It’s all smokes and mirrors folks!.. Banksters are not thinking of you the borrower at all.. read on and you will soon learn why 

What is Risk Fee 

Risk Fee is a fee paid instead of LMI . The Mortgage Risk Fee concept was developed  by an offshore bank which operates in Australia whereby they can underwrite higher LVR loan and not seek LMI. This risk fee protects the lenders loan instead of Lenders Mortgage Insurance. This product is cheaper than traditional LMI  and is generally unknown to the public. 

Comment: until now that is!...  LMI will not pay up on the faintest whiff of any fraudulent activity with your home loan documents.. Who does your Lender have LMI with?  Demand a copy of the policy... Or is it as your bank will say “commercially sensitive”?  So no you can’t have it, even though you were charged for it.. tens of thousands of dollars.  FOS will say we do not discover documents for you.. you will need to seek your own legal advice. 

So how do the Lenders fix that “little” problem of fraudulent activity with your Loan application from day one?.. ... EASY just go and underwrite the risk yourself, then you will answer to no one.  Charge more lovely fees.... 

Benefits of Risk Fee 

As Risk Fee is underwritten by the lender, it saves from the need to seek LMI  from an external insurer who might not approve a loan  

Comment: EXACTLY !!  This is setting most people up to fail as you know you could not afford the loan based on your true income from day one..  

Further, Risk Fee instead of LMI is cheaper as it does not carry the government taxes like stamp duty or GST which are normally applicable on an insurance premium....” 

Comment: EXACTLY. another bonus to the Lender... we do not begrudge banks making money but this is not a level playing field! 

Types of Lenders who offer Risk Fee 

There are several lenders who offer a Risk Fee instead of LMI.  Some of these are banks and a small number of non bank lenders. 

The major banks who offer a Risk Fee instead of LMI  do so to save the client LMI  costs. This creates a niche area where they sell loans at high LVR with discounted costs in comparison to other big bank lenders. 

Comment: Jumbo loans that are doomed to fail as they are not based on your income.. it's based on Asset/s. 

They will also tell you it is OK to add on projected (future) income to your true income at the time and  “kindly” offer to lend you more than you needed to help you afford the loan repayments.... more lovely bonuses to the Banks.  It’s a trap.  You are being set up to fail all right.... 

Non bank lenders  who offer a Risk Fee are generally non confirming lenders,  non conforming lenders who can’t get LMI  for high LVR loans and thus charge a Risk Fee to mitigate any possible losses. This allows them to lend to borrowers who could have had bad credit issues.  Risk Fees of non bank lenders are generally higher as they cater for higher risk borrowers. .... “  

Comment: as in my OWN recent case against a Non conforming lender which was closed by COSL.  MY non conforming lender did not have to abide by any banking laws if they did not want to COSL Case manager tells me. Fraud involved? . There sure was I discovered later on the Lenders part.... and I have the wet ink documents (well actually the police do now) to prove as a comparison.... This meant nothing to COSL.... My case was closed because COSL does not handle fraud complaints.  So what are COSL there for? Just wasting more taxpayers money........ 

Criteria for Risk Fee 

For major lenders who offer Risk Fee instead of LMI,  the basic condition to a lender accepting to charge you a Risk Fee instead of LMI  is holding your current job for greater than 2 years and having a clean credit (Veda) report.

Serviceability needs to be demonstrated as well as proof of genuine savings.  

Comment: What the?? VEDA schmeda... I got a copy of my report myself and it was not even accurate!  

Risk Fees from major lenders are generally for full doc loans also. 

For non bank lenders or non conforming lenders, they will generally require an affordability test only and confirmation of income.   With non conforming lenders, risk fee’s cover both full doc and low doc loans. 

Comment: so this is where the Service calculator comes into it.  Denise Brailey has uncovered that Brokers are given one service calculator along with the banking passwords to access these online, and the Lenders in house credit assessors have a different version of the service calculator.   

Names used for Risk Fee 

The lenders who offer a Risk Fee instead of LMI give the product a name. The various names include: 

1.REF (Reduced Equity Fee)


2.LDP (Low Deposit Premium)


3.Mortgage Risk Fee


4.Equalisation Fee  


Maximum LVR for Risk fee?

The maximum LVR permissible using a Risk Fee instead of LMI  is 95% LVR with the Risk Fee capitalised on top to make the loan 97% LVR 

Comment: EXACTLY ... a year or so down the track your home could be worth less than the loan.. you have been trapped.  Sorry to say but you will lose your home to the bank along with your hard earned cash paid to the bank when the refinance or buffer loans run out... you desperately try to keep your head above water... max. out your credit cards, borrow from friends and family perhaps, to try and keep your home or farm or business or super fund or retirement savings.. 

The Risk Fee is cheaper than LMI  when it’s applied by major lenders and should be seriously considered by any person who is looking for a mortgage. 

Comment:  NO NO NO.... run away from the deal, or go back and save a bigger deposit. I recommend you think really hard before you sign on the dotted line.  Based on your true income, can you really afford that 30 year with 5 years interest only loan?  Of course you will be very happy when you are approved. You trust "if the bank thinks I can afford it, so maybe I really can".... Please take some time to read some of the heartbreaking stories here.  

Have you noticed that the “get rich on property” spruikers are at it again and coming out of the woodwork? 

Non Bank Lenders Risk Fee is suitable and cost effective for borrowers who are unable to obtain a loan from a major lender. 

Comment: Again they are not thinking of the borrower at all. LMI would not pay out on fraudulent documents which had been tampered with by Credit assessors in house to boost your earnings to "make the deal fit" (done after your signature was obtained).  How many loan application documents did you read.. 3 or 4 ??  Most members know there were at least 20 documents faxed over to your lender.  Yet you are signing that you have read and understood EVERYTHING.

Your loan is engineered by the banks to self destruct within 5 years .... near to when the interest only period is coming to a close.. and after all the years of making those payments,  not one skerrick has come off your home loan. 

Lenders are today even writing to their borrowers offering another 5 years of interest only!!  Don't do it!


The Reference to this article is available on request

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  • doyla66
    doyla66 Monday, 03 March 2014


    an absolute disgrace & disregard for australians!!!!!
    I have NO DOUBT I am also a VICTIM of this…..
    LMI killed us financially with our mortgages!!!!!!!
    the BANKSTERS are CRIMS……how do they SLEEP!!!!! they sleep well cause they earn millions of dollars a year!!!!!
    at our EXPENSE
    they MUST be STOPPED
    it is NOT NORMAL to be in this situation…..
    again i ask them……. WHAT IF YOU WERE A VICTIM OF THIS S*#@T you inflict on australian families.

  • doyla66
    doyla66 Monday, 03 March 2014

    I wonder how many borrowers do not even understand what LMI is or that they are paying to insure the bank and not themselves in case of default. There is a big difference between Lenders Mortgage Insurance (which covers lenders) and Mortgage Protection Insurance (which covers you). I just checked the forms ANZ sent me and on their Breakfre form there is a Y/N box re LMI and mine is blank so I assume I did not have any but then again at the time I was conned into re-financing I just left all in their hands for all I then wanted was a mortgage in my own name with a major Bank. LOL - in 2006 when I made that big mistake I had 75% equity yet last year when sold I ended with a tad less than 50% equity on a sale price I now know was determined by ANZ and shonky valuations and not the market. So after 19 years on a home bought with a 50% deposit I ended up with less equity than when purchased 19 years earlier - work that out!

  • doyla66
    doyla66 Tuesday, 04 March 2014

    Further to the above comment just one year after selling and not yet 10 months after settlement I would need a mortgage of around 75% to buy my home back! And they say the property market is not rigged???

  • doyla66
    doyla66 Wednesday, 05 March 2014

    ANZ & Westpac have been undertaking there own inhouse LMI since well before 2007

    What you need to do is bury a level deeper than this.
    Look instead at the capital requirements for Lenders Mortgage Insurance providers (AGN 112 I think).
    Look at how APRA watered down the capital requirements on LMI providers post their consultation papers, with only 1 real LMI provider in the market.
    Look at how much capital APRA makes LMI providers set aside for the riskiest of risky mortgages it insures for the banks.
    Remember these are the mortgages that people take insurance out against because they don’t have the cash for a decent deposit.
    Then the banks take this risky mortgage insurance and use it as a credit mitigant to offset the cost of their capital.
    Talk about insurance leverage, on bank leverage, on an asset bubble ( housing ), geared to a leveraged commodity bubble (China).
    Follow it ALL through to the bank leverage and capital.
    Look at the correlation risk ( ie all banks insuring their riskiest mortgages in a correlated market to 1 event and 1 insurer) .
    Look at the mortgage assessment criteria ( ie Henderson Poverty Index).
    Look at the cross-holding and correlated risk that the new APS210 is too….all there in annual reports and APRA websites……..

    If the banks do fail, the taxpayer will not be able afford to bail them out, and as we are part of the G-20, bail-ins will be preferred, AKA seizure of YOUR money
    or the RBA will have to extend Financial Repression for 30 years… probably both

    2 or 3 fingers of scotch........

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