Lenders' Mortgage Insurance (LMI) is a type of insurance that protects lenders against losses arising from borrower default on high loan-to-value (HLTV) residential mortgages. LMI is typically paid by the borrower, but the lender is the policy beneficiary.
LMI can be used in securitisation transactions in a number of ways, including:
- To reduce the risk of the securitisation: By reducing the risk of default, LMI can improve the credit ratings of the securities issued in the securitisation. This can make the securities more attractive to investors and increase their value.
- To increase the liquidity of the securitisation: By reducing the risk of default, LMI can make the securities more liquid. This can make it easier for investors to buy and sell the securities, which can increase their value.
- To provide certainty to investors: By providing insurance against borrower default, LMI can provide certainty to investors. This can make investors more willing to invest in the securitisation, which can increase its value.
LMI is a valuable tool for securitisation transactions. It can help to reduce risk, increase liquidity, and provide certainty to investors.
Here are some of the applications of LMI in securitisation:
- To enable first home buyers to access home loans: LMI can help first home buyers to access home loans by reducing the risk to the lender.
- To increase the availability of credit: LMI can help to increase the availability of credit by making it easier for lenders to lend to borrowers with high loan-to-value ratios.
- To improve the stability of the financial system: LMI can help to improve the stability of the financial system by reducing the risk of defaults on mortgage loans.
LMI can be a valuable tool for securitisation transactions. It can help to increase access to credit, improve the stability of the financial system, and protect lenders from losses.