Being able to cancel mortgage insurance is a huge selling point for you as a lender. As you’re talking to borrowers that might be considering MI in order to finance a home, talking about the benefits of MI – especially the fact that it’s cancelable – can help them feel more comfortable about having MI on their loan.
However, there are many LTV points and guidelines that you must understand to be able to explain how and when your borrower can cancel their borrower-paid mortgage insurance (BPMI).
MI cancellation and termination can be confusing, so let’s first cover the basics and then break down the guidelines to help you master the topic.
What is the Homeowners Protection Act (HPA)?
The Homeowners Protection Act of 1998 is also commonly referred to as the PMI Cancellation Act. . It was passed to address the difficulties homeowners were experiencing in canceling MI by establishing rights for homeowners, and identifying rules for canceling and terminating borrower-paid MI. It also outlined disclosure and notification requirements, and the return of unearned MI premium.
The HPA applies to loans secured by a single-family home that is the homeowner’s primary residence with borrower-paid mortgage insurance (BPMI).
First, we will dig into borrower-initiated cancellation under HPA which is based on original value and then discuss non-HPA borrower-initiated cancelation based on current value.
And, when you’re working with your borrowers, we have a borrower-facing flier that explains HPA – give the flier to them to reference anytime!
When can my borrowers request to cancel their MI under the HPA?
Under HPA, a borrower can request to cancel the MI when their mortgage balance is scheduled to reach or actually reaches 80% of the home’s original value (the lesser of the sales price or the appraised value at origination).
How do my borrowers cancel their MI subject to HPA?
If the borrower is requesting cancellation, they need to contact their loan servicer in writing around the time the LTV of the loan will reach 80% of the original value to request that the MI be canceled. Your borrowers can find their servicer’s contact information on their mortgage statement.
Borrowers can speed up the time to reach 80% of the original value by reducing the UPB through scheduled monthly payments or the payment of an unscheduled curtailment.
What other requirements must my borrower meet to have their MI canceled under HPA?
There are a few other requirements your borrowers will have to meet to be able to request to cancel their MI:
- Have a good payment history on the mortgage – no 30 day lates in the preceding 12 months and no 60 day lates in the preceding 24 months;
- Be current on their mortgage payments;
- Have no other loans on the house; and
- Satisfy the loan servicer’s requirement that the property value has not fallen below the original value.
While this might not be something you get into with a borrower at the time of origination, it’s possible that your borrowers could come back to you close to the time when they can cancel their MI to ask you what other requirements they must meet.
Does HPA require the servicer to cancel the MI without the borrower requesting it?
Yes! The HPA requires the loan servicer to automatically terminate the borrower’s requirement to pay MI the earlier of:
- The date the mortgage balance is first scheduled to reach 78% of the home’s original value (for a fixed rate loan, it is based on the initial amortization schedule; for an adjustable-rate mortgage, it is based on the schedule then in effect); or
- The month following the midpoint of the amortization period
The borrower must be current on their mortgage payments for the loan servicer to automatically terminate the MI.
There is one more cancellation point to know about – final termination. When the MI does not get canceled by a borrower-initiated request or automatically terminated by the loan servicer as described above, the loan servicer must terminate the MI charges after the loan reaches the mid-point of the original amortization schedule.
Tell me about borrower-initiated cancellation using current value
While the HPA bases the cancellation and termination date LTV calculations on original value, some investor guidelines provide for the cancellation date LTV calculations based on current value. This is the value of the appreciated home based on home improvements or increase in value in the area in which the property is located.
Both Fannie Mae and Freddie Mac have borrower-initiated cancelation guidelines based on current value LTV calculations that sweep in occupancy types (second homes, investment properties) and property types (2-4 units) not covered by the HPA. Generally, the current LTVs are lower and the GSEs impose other conditions.
Want to learn more about Fannie Mae and Freddie Mac cancellation/termination guidelines? Get the downloadable flier here.
Are there ways my borrowers can speed up the time to cancel using original or current value?
Here are some helpful tips to help borrowers speed up their time to cancel their MI:
- Pay ahead on their mortgage
- Invest in home improvements to increase the value of their home
- Check their property value to see if it has increased
- Refinance with an LTV under 80%
Is there anything else I might need to know about the HPA that benefits my borrower?
The rest of this information is in-the-weeds and more related to your borrower’s servicer requirements.
- Servicers must complete an escrow audit each year to alert borrowers to their amortization schedule status. They must also alert borrowers if they will be eligible to cancel the coming year based on the loan’s scheduled amortization.
- Loan servicers must alert the borrower when their PMI is canceled as MI companies such as Enact send refunds to the servicer, not the borrower.
- Servicers are required to refund any unearned MI premiums to the borrower within 45 days of the cancellation notice. Enact refunds any unearned premiums to the servicer within 30 days of receipt of the cancellation notice so servicers can meet that obligation.
It’s important to remember that this blog post is not legal advice. You should always consult with your own legal counsel regarding PMI Cancellation requirements.
Hopefully you feel you have a better understanding of the basics (and some of the nuances) of MI cancellation. You can get more cancellation resources on our website, blog, and by contacting your Enact Sales Rep. We also have helpful infographics and an animation that can help you facilitate some conversations you may have with your borrowers—especially useful in case you ever need a reminder. Check them out below!
More ways we can help
We offer many resources on our website to help you gain new skills and identify tools to better educate and work with your borrowers. And, since going the extra mile comes naturally for us, we also provide insightful training resources to help you continue to stay sharp in the industry.
Be sure to make the most of your MI experience too. If you need some extra insight, you can always contact your Enact Sales Rep for more info. They’ll be happy to help you meet your business needs, answer questions, and point you in the right direction.
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