CFPB Issues PMI Cancellation and Termination Guidance Bulletin

In an effort to bring mortgage servicers into compliance with the Homeowners Protection Act, the Consumer Financial Protection Bureau (CFPB) issued a bulletin on Tuesday providing guidance to servicers regarding the cancellation and termination of private mortgage insurance (PMI).

According to the CFPB, private mortgage insurance provides protection to the lender if the borrower stops making payments on the loan. Private mortgage insurance is usually required by lender if the borrower's down payment is less than 20 percent of the sales price or appraised value of the home and are added to the borrower's monthly mortgage payment.

Congress passed the Homeowners Protection Act of 1998 to provide borrowers with cancellation and termination rights with their private mortgage insurance policy, the CFPB says. The law requires automatic termination of private mortgage insurance once the mortgage balance is reaches 78 percent of the original value of the property, among other criteria.

Private mortgage insurance is a huge cost to consumers, but the Homeowners Protection Act provides specific cancellation and termination rights to protect consumers from unnecessary costs. The CFPB advises that if a servicer does not cancel a borrower’s private mortgage insurance in a timely manner, it can lead to the borrower paying significant amounts of money on unnecessary premiums.

“Consumers should not be billed for unnecessary private mortgage insurance,” said Richard Cordray, CFPB director. “We will continue to supervise mortgage servicers to ensure they are treating borrowers fairly, and today’s guidance should help servicers come into compliance with the Homeowners Protection Act.”

The CFPB noted that this bulletin does not advise of any new responsibilities or requirements, but summarizes existing requirements under the law.

In addition to reaching the 78 percent loan-to-value (LTV) threshold, the borrower must meet certain other requirements for borrower-requested private mortgage insurance cancellation:

• The borrower must have a good payment history.
• The borrower must be current on the loan.
• The borrower must satisfy any requirement of the holder of the mortgage for certification that the borrower’s equity in the property is not subject to a subordinate lien.
• The borrower must satisfy any requirement of the holder of the mortgage for evidence (of a type established in advance and made known to the borrower by the servicer) that the value of the property has not declined below the original value.

Click here to view the CFPB's Private Mortgage Insurance Advisory Bulletin. 

Click here to view the CFPB's Summer 2015 Supervisory Highlights.