Welcome!




Expand Your Education with These Courses from
A Consumer Advocate Approach to Real Estate: Course 1.
Business Creation - Prospecting: Skills for Sales Success: Part Three.
Territory Management: Skills for Sales Success: Part Eight.
Expand your education through NAR's REALTOR® University: A Consumer Advocate Approach to Mortgages: Course 2.
Bundle 2: CIPS Elective Courses (Non-US Version).

Mortgage Insurance Cancellation: The Myths and Realities

Have a comment on this article? Share on Facebook!

By Brien McMahon

RISMedia, June 3, 2011—When it comes to private mortgage insurance (MI), there are several myths that exist that make buyers reluctant to consider a conventional loan with MI as an option when purchasing a home. One of the more common misconceptions is that cancelling MI is a difficult—not to mention time-consuming—process.

The irony is that the majority of buyers don’t harbor those same beliefs or reservations about an FHA insured loan when, in reality, FHA coverage may be less easily cancelled, or take longer to cancel, than MI.

HPA Makes Cancellation Clearer
When it went into effect as a new federal law, the Homeowners Protection Act (HPA) of 1998—which applies to both FHA and MI insured loans—required lenders and servicers to provide disclosures regarding MI for residential loans obtained on or after July 29, 1999. Prior to this, consumers were responsible for requesting MI cancellation if they met two factors: one, their loan balance was paid down to 80 percent of the property; and two, they had a good payment history.

While many lenders obliged consumer requests to drop MI coverage, consumers had sole responsibility for keeping track of their loan balance.

The HPA established three different times when a lender or servicer must notify consumers of their rights.

At loan closing, lenders must disclose:
• The right to request MI cancellation and the date on which the request can be made
• The requirement that MI be automatically terminated and the date on which this will occur
• Any exemptions to the right to cancellation or automatic termination
• A written initial amortization schedule for fixed-rate loans only

Each year, loan servicers must send borrowers a written statement that discloses:
• The right to cancel or terminate MI
• An address and telephone number to contact the loan servicer for determining when MI may be cancelled

When MI coverage is cancelled or terminated, lenders must send a notification to borrowers stating:
• MI has been terminated, and the borrower no longer has MI coverage
• No further MI premiums are due

Termination of Coverage
Under the terms of the HPA, mortgage lenders or servicers must automatically cancel borrower-paid MI coverage when the mortgage has amortized to 78 percent of the original property value, with all unearned premiums returned to the borrower within 45 days of the cancellation or termination date. This provision also requires that the borrower be current on mortgage payments required by the terms of the loan, and if the loan is delinquent on the date of automatic termination, a lender must terminate the coverage as soon as the loan becomes current.

Cancellation of Coverage
Also under the HPA, a homeowner has the right to request MI cancellation when the mortgage balance reaches 80 percent of the original property value. All payments must be current, meaning a homeowner must not be 30 days late on a mortgage payment within one year of their request, or 60 days late within two years.

However, a borrower can only initiate a cancellation request for FHA based on their prepayment of the loan, and even then, it can only be requested beginning five years after the loan origination date.

With MI, homeowners can request cancellation based on prepayment of the loan, as well as an appraisal. Despite falling property values, it’s possible for homeowners to gain enough equity in their home to request cancellation in less than five years based on a home appraisal.

Why This Matters to Agents
By understanding these rules and what they mean for homeowners, real estate agents can educate their buyers to help them better evaluate allof their home financing options based on facts rather than myths.

This is even more important considering the FHA’s recent price increase, which has reduced buyers’ purchasing power and increased monthly mortgage payments.

Brien McMahon is chief franchise officer of Radian Guaranty Inc. More information may be found at www.radian.biz.

Want instant access to great articles like this for your blog or newsletter? Check out our 30-day FREE trial of REsource Licensed Real Estate Content Solutions. Need easy stay-in-touch e-Marketing solutions too? Try Pop-a-Note for 99 cents!
Join RISMedia on Twitter and Facebook to connect with us and share your thoughts on this and other topics.




Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Copyright© 2014 RISMedia, The Leader in Real Estate Information Systems and Real Estate News. All Rights Reserved. This material may not be republished without permission from RISMedia.

Content on this website is copyrighted and may not be redistributed without express written permission from RISMedia. Access to RISMedia archives and thousands of articles like this, as well as consumer real estate videos, are available through RISMedia's REsource Licensed Content Solutions. Offering the industry’s most comprehensive and affordable content packages. Click here to learn more! http://resource.rismedia.com

Our Latest News >>