The Government's plan to develop a system for portability of lenders mortgage insurance would have application in only a very few mortgage refinancing arrangements, a senior industry figure said yesterday. QBE's LMI chief executive, Ian Graham, said that only about 10 per cent of insured loan refinancings involved a true "like for like" transfer of debt from one lender to another so making them suitable for LMI transfer. In its Competitive and Sustainable Banking System reform package released last December, the Government said it would accelerate Treasury development of a framework for transferring lenders mortgage insurance, as well as introduce a central registry of mortgages. The Government's aim is to reduce the cost involved in consumers refinancing their mortgages by developing a system that will allow for the transfer of an LMI policy from lender to lender. According to the Insurance Council of Australia, from an insurer's perspective the termination of the existing mortgage and the new arrangement are treated operationally and legally, and from a regulatory, ratings' agency and capital perspective as a new risk. In its submission to the Senate Economics Reference Committee inquiry into banking competition, the ICA said: "On a refinancing, the mortgage is terminated and the borrower enters into a new loan arrangement and a new mortgage with a new lender. In most instances, the circumstances of the new arrangement and mortgage are different to the original loan - in terms of loan amount, loan-to-valuation ratio and borrower circumstances." Graham said: "Refinancing changes the risk. The question is whether it is an impediment to refinancing or switching if it is regarded as a new loan that requires a mortgage insurance premium? We don't think so." The ICA estimates that 20 per cent of mortgages are insured with an LMI provider. Of these insured mortgages, about 30 per cent are refinancings. And of those insured loans being refinanced about 10 per cent are like for like. It is not a big part of the market. Graham said that in the current debate the benefits of LMI had been overlooked. "Someone with a five per cent deposit gets the same interest rate as someone with a 50 per cent deposit because insurance is there for the lender. "If the lender had to charge a higher rate to cover the increased risk a low-deposit borrower represents, the cost to the borrower would be much higher than the LMI premium passed on by the lender." Graham says the other issue with LMI portability is that mortgage products would have to be standardised for it to work. "How much do we want to be prescriptive about the mortgage products that lenders offer?" Graham said the industry was working with Treasury on a workable outcome. He said greater transparency in communication with borrowers was one of the industry's goals.