(PMI) PRIVATE MORTGAGE INSURANCE REMOVAL

 

The Homeowners Protection Act of 1998 requires that borrower-purchased mortgage insurance be automatically terminated on the applicable termination date for a mortgage closed on or after 07-29-1999 if the loan proceeds are used for the purchase, initial construction, or refinancing of the borrower’s one-family principal residence – provided the borrower’s payments are current on the termination date.  The Act also requires cancellation of the mortgage insurance for these mortgages at the borrower’s request, if specific conditions are met.

 Fannie Mae Mortgage Insurance Cancellation Policy is more expanded.  For example they allow borrower-initiated cancellation of mortgage insurance based on the current value of the property, and will apply it to all mortgage regardless of their closing date.

 Lender-purchased mortgage insurance is different form borrower-purchased mortgage insurance in that lender-purchased mortgage insurance cannot be canceled by the borrower, while borrower-purchased mortgage insurance can be automatically terminated or canceled at the borrower’s request. Lender-purchased mortgage insurance cancellation usually results in the borrower having to pay a higher interest rate.  Lender-purchased mortgage insurance can only be terminated by refinancing, payoff, or liquidation.  Lender-purchased mortgage may also be tax deductible for federal income tax purposes.

Servicer’s must disclose to the borrowers annually about mortgage termination.  The servicer may choose to disclose those fees for appraisals, broker’s price opinion, or certification of value.

All conventional mortgages serviced for Fannie Mae will be subject to automatic termination of mortgage insurance.  The borrower does not have to take any action to initiate an automatic termination nor may the service impose a charge for processing the termination.

For mortgages closed after July 29, 1999, the applicable termination date is the date that the principal balance of the mortgage is first scheduled to reach a level that is 78% of the original value of the property.  If the scheduled loan-to-value ratios for the mortgage dose not reach 78% before the mid-point of the mortgage amortization period, the first day of the month following the date the mid-point is reached must be used as the termination date. For mortgage closed prior to July 29, 1999 insurance is to be terminated the first day of the month following the dated that is the mid-point of the original mortgage amortization period.

Borrower initiated cancellations based on original property value are done by people who have had their mortgages for some time and have accelerated their amortization by paying additional principle.

A request for borrower-purchased mortgage insurance can be made based on the current appraised value of the property. Borrowers who make this type of request have made improvements which have increased their property values or those who believe that the value of their property has increased due to increasing property values in their neighborhood. 

Evaluating borrower requests for cancellation.

Must have an acceptable payment record

1. No payment 30 days or more past due in the 12 months preceding the applicable cancellation date.
2. No payment 60 days or more past due in the 24 months preceding the applicable cancellation date.
3. The loan to value ratio must be at least 80% (This will vary depending on several factors).