Rules for Dropping Mortgage Insurance
What you and your clients should know!
Yep, there’s a disclosure for that! But what do the PMI termination rules really mean to the average person?
CFPB Rules for Dropping Conventional Mortgage Insurance – Effective August 2015
- Borrower must initiate request in writing to loan servicer
- Borrower must have an LTV ratio of no greater than 80%
- Borrower may make principal payments that advance the principal balance to 80% of original value
- Borrower must be current on loan and may not have any 30-day late payments in past 12 months or payments that were 60 or more days past due in the 12-month period beginning 24 months before the later of the cancellation date or the date the borrower requests cancellation
- Servicer can request evidence that the borrower’s equity is not subject to a subordinate lien
- The servicer can require the borrower to provide evidence that the value of the property has not declined below the original value
- Servicer may require the borrower to pay for an appraisal to determine that current value has not declined below original value
- PMI must be automatically cancelled on the termination date. Termination date is defined as the date on which the principal balance is first scheduled to reach a 78% LTV of the original value regardless of outstanding balance for that mortgage on that scheduled date
- Borrower may not be delinquent on termination date; if delinquent, PMI must be terminated on the first day of the month beginning after the date that the borrower becomes current
- When these conditions are met, PMI must be terminated even if property has declined below original value
- Servicers MAY NOT require an appraisal as a condition of automatic termination
- Borrower MAY NOT make principal reductions to expedite automatic termination; this approach must be done only on a borrower-requested termination
- When PMI is not terminated under a borrower-requested termination or an automatic termination, the Homeowners’ Protection Act provides that 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 the borrower is current on the loan on such date.
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