The Consumer Financial Protection Bureau (“CFPB”) has issued a bulletin providing guidance to mortgage servicers on the cancellation and termination of private mortgage insurance (“PMI”) per the Homeowners Protection Act (“HPA”).
The CFPB said it has identified “substantial industry confusion” over the HPA’s requirements for PMI cancellation and termination, and its examiners have identified a number of violations by mortgage servicers in complying with these requirements, including:
Borrower-Requested Cancellation
A borrower can request cancellation of PMI coverage in writing to the mortgage servicer. The buyer must meet certain requirements to qualify for PMI cancellation, including having a good payment history, being current on the loan, certifying that the property is not subject to a subordinate lien and that the value of the property has not declined below the original value. If the borrower meets all these requirements, the PMI must be cancelled on the cancellation date, which is defined by the HPA as, at the option of the borrower, either:
“(1) The date on which the principal balance of the mortgage is first scheduled to reach 80 percent of the “original value” of the property (regardless of the outstanding balance), or (2) the date on which the principal balance of the mortgage reaches 80 percent of the “original value” of the property based on actual payments.”
Automatic Termination
If the borrower is current on the loan, the requirement for PMI must automatically be terminated on the termination date, which is defined as:
“The date on which the principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the property securing the loan (irrespective of the outstanding balance for that mortgage on that date).”
If the borrower is not current on the loan as of the termination date, PMI must automatically end on the first day of the first month beginning after the borrower becomes current on the loan. Under these conditions, automatic termination of PMI is required even if the current value of the property is below the original value.
Final Termination
Per the HPA, a requirement for PMI coverage cannot be imposed beyond the first day of the month following the date that is the midpoint of the amortization period of the loan if, on that date, the borrower is current on the loan.
PMI Refunds
According to the HPA, a servicer is prohibited from collecting PMI premiums more than 30 days past the termination date or more than 30 days after receiving a cancellation request from a borrower who provides satisfactory evidence for PMI termination, whichever date is later. Servicers must also return any unearned PMI premiums within 45 days of PMI termination or cancellation.
Annual Disclosures
Servicers must notify borrowers in writing of their rights as they pertain to PMI termination and cancellation annually. This communication must include a contact address and phone number for the borrower to contact the servicer regarding PMI.
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