Lenders' Mortgage Insurance (LMI) is a type of insurance that is used to protect lenders against the risk of default on a mortgage loan. LMI is typically required by lenders when the borrower's loan-to-value ratio (LVR) is high.
LMI can be used in securitisation transactions in a number of ways, including:
- To reduce the risk of the securitisation: LMI can reduce the risk of the securitisation by providing a guarantee that the lender will be repaid in the event of a default. This can make the securitisation more attractive to investors.
- To increase the liquidity of the securitisation: LMI can increase the liquidity of the securitisation by providing a guarantee that the underlying assets will be worth more than the amount of the securitisation. This can make it easier for investors to sell their securities.
- To lower the cost of the securitisation: LMI can lower the cost of the securitisation by providing a guarantee that the lender will be repaid in the event of a default. This can reduce the amount of interest that the investors have to pay on the securities.
Here are some of the applications of LMI in securitisation:
- To securitise high-LVR loans: LMI can be used to securitise high-LVR loans, which are loans where the borrower's LVR is greater than 80%. These loans are considered to be riskier than lower-LVR loans, so LMI can be used to reduce the risk of the securitisation.
- To securitise loans to borrowers with poor credit history: LMI can be used to securitise loans to borrowers with poor credit history. These borrowers are considered to be riskier than borrowers with good credit history, so LMI can be used to reduce the risk of the securitisation.
- To securitise loans in emerging markets: LMI can be used to securitise loans in emerging markets, where the risk of default is higher than in developed markets. LMI can help to reduce the risk of the securitisation and make it more attractive to investors.
LMI can be a valuable tool for securitisation transactions. It can help to reduce the risk of the securitisation, increase the liquidity of the securitisation, and lower the cost of the securitisation.