Private Mortgage Insurance (PMI) Cancellation

Homeowners Protection Act (HPA)

The Homeowners Protection Act (HPA) of 1998, also known as Private Mortgage Insurance Cancellation Act, covers single-family primary residences whose sales were closed on or after July 29, 1999.

The HPA serves as a guideline for Mortgage Insurance cancellation and Fannie Mae and Freddie Mac have updated their own PMI cancellation policies in accordance with the Act.

HPA provides for borrower-requested cancellation and lender-required cancellation. Historically, lenders have viewed an 80% loan-to-value (LTV) ratio as a prudent standard for making consumer real estate loans.

This 80% ratio has served to ensure that the borrower had enough interest in the property to continue to make the payments and, in the event the borrower was unable to make the payments, that the lender had sufficient equity available to cover foreclosure costs.

Borrower-requested PMI cancellation under HPA

The borrowers must provide a written request for PMI cancellation to the lender who cancels the PMI policy:

• On the date the mortgage loan balance is first scheduled to reach 80% of original value, based solely on the initial amortization schedule, regardless of the outstanding balance of the loan, or
• On the date the mortgage loan balance actually reaches 80% of the original value

As an FYI, the aforementioned points may sounds a bit odd and may appear to be suggesting the same thing; however, the distinction between “scheduled” and “actually” reaching 80% is the key. If someone pays down their mortgage aggressively then the “actually reaches 80%” become applicable.

Eligibility conditions for PMI removal

The borrower must satisfy any lender’s requirements that the property value has not declined and that no subordinate liens exist. Borrowers may be charged for an appraisal, broker’s price opinion (BPO), or a certificate of value to determine the property’s current value.

Do NOT order your own appraisal. The mortgage servicers are required to order the appraisal.

The borrower must also have a good payment history which means:

1. the borrower must be current at the time cancellation is requested and any outstanding late charges must have been paid,
2. no 30-day late payments in the last 12 months, and
3. no 60-day late payments in the last 24 months

As an FYI, Fannie Mae doesn’t have any seasoning requirements for the aforementioned guidelines.

Mortgage services that may try to adhere to the “letter of the law” and require PMI exist for 24 months in order to comply with the zero 60-day late payments in the last 24 months.

Our suggestion would be to challenge the servicer and site the HPA to get the PMI removed if you have paid down the balance to that 80% LTV.

Automatic Termination

Conventional mortgages are subject to the automatic termination of mortgage insurance when certain conditions are met.

The borrower does not have to take any action to initiate an automatic termination of the mortgage insurance, nor may be charged for processing an automatic termination. However, borrowers should be pro-active as it’s probable that the PMI can be removed long before the automatic termination period.

For single-family principal residence and second home loans closed on or after 07/29/99 (and using the occupancy status from closing), the mortgage insurance is automatically cancelled when:

• The date that the loan is first scheduled to reach 78% of the original property value based on the initial amortization schedule, or
• The first day of the month after the midpoint of the loan’s amortization period.

Borrower’s payments must be current on the scheduled termination date. If the loan is not current on the scheduled termination date (at the midpoint or when the trigger LTV is scheduled to be reached), then the servicer must terminate the PMI on the first day of the month after the loan becomes current (including late charges).