Getting rid of PMI is a paper chase usually ending with the homeowner throwing up their hands & resigning themselves to continue paying the premium.
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That being said “Private Mortgage Insurance” (PMI) is a necessary evil for our industry, given the lender abuses occurring in the last 2 decades. If only the home buyers with (a minimum) 20% down were able to buy a home; we would be a nation of renters.
So here we go!
The Consumer Finance Protection Bureau (CFPB) website outlines the 2 ways to remove PMI from a home loan; either by “REQUESTING CANCELLATION” or by “AUTOMATIC TERMINATION”.
There is no provision for cancelling PMI based on property’s increased appreciation.
“Requesting” Cancellation
The Homeowners Protection Act (HPA) of 1999 gives homeowners the right to “REQUEST” the LENDER cancel PMI when the PRINCIPAL BALANCE of the mortgage has fallen to 80% of the “ORIGINAL VALUE”(sales price) of the home.
For example: A purchase transaction of $360k with 10% down (90% LTV), will result in a loan amount of $324,000.
Based on an interest rate of 4%; the length of time to pay the loan down to 80% LTV is approximately 63 months.
Homeowners can make the request earlier, IF they have made additional “principal” payments.
The “Loan Mod Experience”
Getting the lender to voluntarily comply with The Homeowners Protection Act (HPA) is practically the same as obtaining a loan modification.
The lender often tries to deny or delay the cancellation, in much the same way lenders denied and delayed loan modifications.
But if they do not comply there are remedies thru the CFPB, Under Section 6 of RESPA, “lenders must acknowledge the complaint within 20 business days and must resolve the complaint within 60 business days by correcting the account or giving a statement of the reasons for its position”.
“A Cancellation Request”
1) “The request must be in writing”.
The request needs to be organized into 1 neat package which will be need to be updated as the process grinds on.
Communicating by phone (with a conversation log), fax and email is fine, but all communications and documentation should be sent by “certified mail”.
The letter SHOULD NOT be included with the mortgage payment, but should be sent separately to a customer service address.
2) The homeowners must be current on the last 24 months mortgage payments, property taxes and insurance. Because all payments will have impounds, simply down load a 24 month payment history directly from the lender’s website.
3) “No junior liens” (such as a second mortgage).
This also includes a mechanics lien, tax lien or court judgement “attached” to the property (click here for an affidavit declaring there are no junior liens).
“Request for Automatic Termination”
Automatic termination of mortgage insurance only occurs when 1 of 2 conditions have been met.
1) The loan principal is paid down to 78% of the homes “original value” (sales price).
2) When the loan’s payment schedule is at “midpoint”.
A 30-year loan’s “midpoint” occurs at 15 years.
Several months before either date occurs, the homeowner should begin the process by submitting a“written termination request” to the lender.
The termination request informs the lender WHICH milestone is being reached and WHY it triggers the automatic cancellation (HPA).
The only pre-condition is the homeowner must be current on their mortgage payment at time of the cancellation.
Editor’s Note: It quite common lenders to demand a 24 month on time payment history or require a junior lien be paid off but both precondition violate the HPA.
If your lender is not complying with either your request for termination or automatic cancellation use this sample letter from HUD’s website to inform them of the legal issues at stake.
In Conclusion
Terminating mortgage insurance is a paper chase; homeowners often give up or allow the process to be delayed which ends up costing them thousands of dollars.
Daniel Dobbs (.org)
Managing Broker
Mutual Home Mortgage
265 S. Randolph #120
Brea, Ca. 92821
Cell: 949 250-3981
Dandobbs6@gmail.com
BRE # 00986886 …..NMLS# 307631
Copywrite © August, 2018 Daniel Dobbs MHM Mortgage /// All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed “Attention: Daniel Dobbs, Author- VP-Broker Mutual Home Mortgage 265 S. Randolph #120 Brea, Ca. 92821 Cell: 949 250-3981 Dandobbs6@gmail.com NMLS #307631 BRE #00986886