Cancelling Borrower-Paid Private MI
The Homeowners Protection Act of 1998 is designed to benefit homebuyers with borrower-paid private mortgage insurance on certain loans made on or after July 29, 1999.* Since the law applies to our lender-customers, PMI Mortgage Insurance Co. wants to provide general information on the law’s provisions and how they might affect you.
- Borrowers may have the right to cancel their private mortgage insurance when certain cancellation requirements are met.
- On loans with borrower-paid mortgage insurance, lenders must inform the borrower at closing details about the private mortgage insurance and potential for cancellation. Servicing lenders must notify borrowers annually of their cancellation rights and provide information about the lender’s cancellation process.
- Payment requirements by the borrower for private mortgage insurance should automatically be terminated by the servicing lender when both of the following conditions are met:
- Their mortgage balance is 78% of the home’s original value.
- The borrower is current on their payments.
- If contacted by the borrower, PMI will direct the borrower to contact their lender with a written request to cancel private mortgage insurance when they can demonstrate all of the following conditions are met:
- Their mortgage balance is 80% of the original value of the property.
- The borrower has a good payment history.
- The borrower can certify that no subordinate loans are on their home.
- The borrower can provide evidence (described by lender in their annual notice) that the property value of their home has not declined.
- If the borrower has paid for private mortgage insurance in advance at closing or is currently paying on an annual basis, upon cancellation they are entitled to a refund of the unearned premium, which must be transferred by the lender within 45 days of cancellation notification.
- If the request for mortgage insurance cancellation is denied, the servicing lender must provide the borrower with written notice of why they did not meet the requirements.
- Mortgages designated at inception as “high risk” under the law are treated separately. Private mortgage insurance on all high-risk conforming loans must be automatically cancelled at the midpoint of their amortization period as long as payments are current. For non-conforming loans designated as high risk by the lender, borrower-paid private mortgage insurance is also required to be cancelled when the mortgage balance is paid down to 77% of the original value of the home.
- The law does not cover piggyback, or 80-10-10, loans.
- The law does not apply to mortgages on multi-family residences, investor properties, second homes, or commercial real estate.
- The law does not apply to government mortgage insurance (FHA loans). The cancellation provisions of the law also do not apply to lender-paid mortgage insurance.
- If the loan was issued in New York or other states with their own MI cancellation laws, different standards may apply.
The above information does not constitute legal advice. For detailed information on the mortgage insurance cancellation law and how it affects your company, you should consult your own legal counsel.
Some states have their own mortgage insurance cancellations laws, and different standards apply.
*Applies to mortgages on single-family, owner-occupied primary residences only.