Homeowner’s Protection Act

General

  • No implementing regulation
  • The law is the Homeowners Protection Act of 1998 (HPA)
  • Permits a borrower to cancel or requires termination of private mortgage insurance (PMI) when the level of equity in the home reaches a certain level.
  • Generally applies to transactions after July 29, 1999, in which a mortgage, deed of trust, or purchase-money security interest is created against a single-family dwelling that is the primary residence of the borrower, and that is used to finance the acquisition, initial construction, or refinancing of the dwelling.

Definitions

Amortization Schedule “Then in Effect”

For adjustable rate mortgages, the amortization schedule is the schedule established at consummation or, if the schedule has been changed or recalculated, the most recent schedule under the terms of the note or mortgage.

Cancellation Date

Fixed Rate Mortgages

The cancellation date is the date, at the option of the borrower, on which the principal balance of the mortgage:

  • Based solely on the initial amortization schedule, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 80 percent of the original value of the property securing the loan.
  • Based solely on actual payments, reaches 80 percent of the original value of the property securing the loan.
Adjustable Rate Mortgages

The cancellation date is the date, at the option of the borrower, on which the principal balance of the mortgage:

  • Based solely on amortization schedules then in effect for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 80 percent of the original value of the property securing the loan
  • Based solely on actual payments, first reaches 80 percent of the original value of the property securing the loan.

Good Payment History

A good payment history is when the borrower has not:

  • Made a mortgage payment that was sixty days or longer past due during the twelve-month period beginning twenty four months before the date on which the mortgage reaches the cancellation date
  • Made a mortgage payment that was thirty days or longer past due during the twelve-month period preceding the date on which the mortgage reaches the cancellation date.

Termination Date

Fixed Rate Mortgages

For fixed rate mortgages, the termination date is the date on which the principal balance of the mortgage, based solely on the initial amortization schedule for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 78 percent of the original value of the property securing the loan.

Adjustable Rate Mortgages

For adjustable-rate mortgages, the termination date is the date on which the principal balance of the mortgage, based solely on the amortization schedule then in effect for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 78 percent of the original value of the property securing the loan.

Termination of PMI

Member Cancellation

The member may cancel PMI on the “cancellation date” (when equity reaches 20 percent) if the member:

  • Submits a written request to the credit union
  • Has a “good payment history”
  • Satisfies any requirement by the holder of the mortgage for:
  • Evidence that the value of the property securing the mortgage has not declined in value below the original value.
  • Certification that there is no subordinate lien.

No premium payments may be required from the borrower more than thirty days after the later of:

  • The date the member’s written request is received.
  • The date the member provides evidence of the value, or certifies that there is no subordinate lien.

Automatic Termination

PMI automatically terminates:

  • On the “termination date” (when equity reaches 22 percent) if the member is current on required payments. OR
  • On the date after the termination date when the member becomes current.

No premium payment may be required more than thirty days after the termination date or the date on which the member becomes current.

Final Termination

  • Final termination of PMI must occur on the first day of the month following the date at which the amortization period hits the midpoint, provided the member is current.
  • No premium payment may be required more than thirty days after the final termination.
  • If the borrower is not current on the termination date, final termination must occur as soon as the borrower become current.

Loan Modifications

If the credit union and the borrower agree to a modification of the terms or conditions of a residential mortgage loan, the cancellation date, termination date, and/or final termination must be recalculated to reflect the agreed upon modifications.

Return of Unearned Premiums

In general, all unearned private mortgage insurance premiums must be returned to the borrower by the loan servicer no later than 45 days after the termination or cancellation of the insurance.

Initial Disclosures

The credit union must provide the member with certain written disclosures at the time the loan is closed.

Fixed Rate Mortgages

If the loan is a fixed-rate mortgage, the credit union must provide:

  • A written initial amortization schedule.
  • A written notice stating that:
  • The member may cancel PMI and specifying the date on which he/she may request cancellation based on the initial amortization schedule.
  • The member may request an earlier cancellation based on actual payments.
  • PMI can terminate automatically, specifying the termination date for the loan.

Adjustable Rate Mortgages

If the loan is an adjustable-rate mortgage, the credit union must provide a written notice stating that:

  • The member may cancel PMI and the servicer will notify the member when the cancellation date is reached.
  • PMI can terminate automatically on the termination date and the member will be notified of the termination or as soon as the loan is current.

Annual Disclosures

Annually, the servicer must provide the member with:

  • A written statement that describes the right to cancellation and termination
  • An address and phone number where the member can contact the servicer to determine if the PMI can be cancelled.

This disclosure may be provided on the annual RESPA escrow account statement or as part of the Form 1098 statement.

Annual Disclosures for Loan Originated Prior to July 29, 1999

Annually, the servicer must provide the member with a written statement that:

  • PMI may be cancelled by the member (with the consent of the credit union or in accordance with state law).
  • An address and phone number where the member can contact the servicer to determine whether PMI can be cancelled.

This annual disclosure may be provided on the annual RESPA escrow account statement or as part of the Form 1098 statement.

Notification upon Cancellation or Termination

Within thirty days after the PMI has been cancelled or terminated, the servicer must notify the member in writing that:

  • The PMI has terminated.
  • The member no longer has PMI.
  • No further premiums are due.

Rejection of Cancellation Request

  • If the servicer determines that the member is not eligible for member cancellation or automatic termination, the servicer must provide the member with a written notification as to the grounds for this determination.
  • This notice must be provided no later than thirty days after the date the member submits a written requestabout cancellation, or the date on which the member satisfies the evidence and certification requirements.

Lender-paid Mortgage Insurance

Initial Notice

The credit union must provide a written notice to the prospective member by the date the loan commitment is made explaining that lender-paid mortgage insurance:

  • Differs from borrower-paid mortgage insurance because it cannot be cancelled by the member.
  • Usually results in a higher interest rate than for borrower-paid mortgage insurance.
  • Can be terminated only when the mortgage is refinanced, paid off, or terminated.
  • Has benefits and disadvantages demonstrated by a generic analysis of differing costs and benefits as compared with borrower-paid mortgage insurance over a ten-year period, assuming prevailing interest and property appreciation rates.
  • May be tax deductible.

Termination Date Notice

  • A written notice must be sent to the borrower not later than 30 days after the termination date that would apply if the mortgage insurance were paid by the borrower instead of the lender.
  • This notice must indicate that the borrower may wish to investigate options for refinancing that could eliminate the requirement for private mortgage insurance for the loan.

Fees for Disclosures

Imposing any fee or other cost on the member with respect to the providing any of the required notices is prohibited.

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