Private Mortgage Insurance Law Every Owner Should Know

Most homeowners don't know a lot about private mortgage insurance law and the way it relates to their personal home mortgages. However, it is something that every homeowner should take the time to learn a little about; laws related to private mortgage insurance are in place to protect consumers and make them aware of their rights under the law.

Many states have their own laws regarding private mortgage insurance and how it is applied to homeowners the purchase homes, and the financing for those homes, in those particular states; however, most of those state laws are fashioned after the federal law created to protect homebuyers with issues regarding private mortgage insurance.

The Homeowner's Protection Act (HPA) of 1998

Congress passed the Homeowner’s Protection Act of 1998, otherwise known as HPA, to ensure that homeowners were provided certain basic rights regarding private mortgage insurance. HPA was also created to ensure that homeowners were always aware of these rights. In fact, the law requires that the lender, or
servicers, of your home loan make these rights known to you at three different times:

1.At the time of your home closing;
2.At least once a year or by mail;
3.Whenever your private mortgage insurance is canceled or terminated

The law requires that your lender inform you when you will be eligible to remove private mortgage insurance from your home loan; in addition, they must tell you how you can request that it be removed or canceled. However, there are stipulations in the laws that govern when you can request removal of your private mortgage insurance. Furthermore, there are stipulations that dictate when a lender must automatically remove coverage from your policy.

What Loans Are Covered?

HPA generally applies to residential home mortgages that were entered into on or after July 29, 1999; but it does have some requirements for older homeowners as well. HPA does not apply to VA or FHA government backed home loans. Moreover, HPA does allow for different requirements whenever a loan is considered, or classified, as a high-risk loan type. High-risk loans are generally those above the threshold set for conforming loans. At the time of this writing, that amount was $252,700. That figure is determined by Fannie Mae and Freddie Mac, which are the two government chartered organizations responsible for home mortgage loans.

HPA and Canceling Your Personal Mortgage Insurance

Under the Homeowner’s Protection Act, you have the right to ask the lender to cancel your private mortgage insurance policy whenever your loan balance has reached an amount that is equal to 80% of your original purchase price, or of the appraised value your home, whichever is less. However, you must be current on your mortgage payments. This generally means that you have not been 30 days late - within one year before making the request - or 60 days late - within two years before making the request - to have your private mortgage insurance cancelled.

HPA Laws Governing Automatic and Final Termination

The HPA stipulates that mortgage loan lenders, or loan servicers, must automatically cancel private mortgage insurance coverage on home mortgages, once the loan balance reaches 78% of the value of your home. However, once again, you must be current on your mortgage - before the coverage will be canceled. If you're not current, and up-to-date, on your monthly mild mortgage payments, then the lender is required to cancel your private mortgage insurance as soon as you do become current. The requirements for high risk loans are essentially the same - except the look the law allows the balance to fall to 77% before automatic termination is required.

In addition, HPA also requires that if your private mortgage insurance policy has not already been previously canceled or terminated - then the lender must cancel the policy at the midpoint of your amortized home loan. This is to say, if you're home loan is for 30 years - then you would have 360 monthly payments - you would reach the midpoint of your loan after 180 payments. At that time the lender must cancel your coverage; again, you must be current on your payments. Once you are current on your payments, the coverage must be canceled within 30 days.

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