WASHINGTON (8/6/15)--A bulletin issued by the Consumer Financial Protection Bureau (CFPB) Tuesday provides guidance to mortgage servicers regarding cancellation and termination of private mortgage insurance (PMI).
The bulletin focuses on certain requirements present in the Homeowners Protection Act (HPA), requirements the bureau states it has identified “substantial industry confusion” with, but do not create any new responsibilities or requirements.
PMI protects lenders if a borrower stops making payments on a loan. Lenders generally require PMI if a borrower is putting down less than 20%, and add PMI premiums to the monthly mortgage payment. The HPA was made into law in 1998 to address borrowers’ difficulty in canceling PMI when they have reached a certain level of equity.
Borrowers may initiate cancellation of PMI coverage by submitting a written request to the servicer. The HPA states that, as long as a borrower meets certain requirements, PMI shall be cancelled on the designated cancellation date.
The cancellation date is, at the option of the borrower, when the principal balance of the mortgage reaches 80% of the original value of the property.
The borrower must also have a good payment history; must be current on the loan; must ensure the property is not subject to a subordinate lien; and must show the value of the property has not declined below the original value.
The HPA also provides a date for when PMI must be automatically terminated for residential mortgage transactions. That is defined as the date on which the principal balance of the mortgage is first scheduled to reach 78% of the original value of the property.
If the borrower is not current on the loan at that date, the PMI must automatically terminate on the first day of the month after the date the borrower becomes current.