House Passes Bill To Clarify 1998 Law And To Make It Easier for Homeowners to Cancel Mortgage Insurance
|May 23, 2000|
The House today passed legislation - Private Mortgage Insurance Technical Corrections and Clarification Act - that will ease implementation of the Homeowners Protection Act, the 1998 law that made it easier for homeowners to cancel private mortgage insurance and save thousands of dollars on mortgage payments. Today's bill, sponsored by House Financial Institutions Subcommittee Chairwoman Marge Roukema, gives regulators the technical guidance they need to implement the original measure.
"This bill will eliminate the confusion that has resulted since the Homeowners Protection Act was passed in 1998," Roukema said. "It will ensure that homeowners are able to cancel PMI as Congress intended. PMI costs thousands of homeowners millions of dollars every year because they continue paying it long after they could have dropped it."
Private mortgage insurance is usually required by lenders when home buyers make a down payment of less than 20 percent. The insurance, which typically costs between $20 and $100 a month, protects lenders in case the borrower defaults on the loan. The insurance can be canceled when the homeowner's equity rises above 20 percent, but many buyers are unaware of that fact and continue paying the insurance premiums throughout the life of their mortgage.
In 1998, Congress passed the Homeowner Protection Act. Sponsored by James V. Hansen, R-Utah, the bill required lenders to automatically cancel PMI when it is no longer required and to give borrowers detailed information on the terms and conditions of their PMI and their right to cancel the coverage.
Since the 1998 law was passed, however, some lenders have been uncertain about the technical definitions and requirements of the bill, particularly concerning adjustable rate mortgages, balloon mortgages and loans whose terms or rates are changed during the life of the loan. Today's bill clarifies technical details of the original legislation and makes the PMI law "unambiguous," Roukema said.
Roukema's bipartisan bill is co-sponsored by Hansen and supported by consumer groups and lenders. It passed on a voice vote this afternoon.
PMI enables families to purchase a home with a down payment as small as 3 percent. More than 1 million people a year buy or refinance a home with the help of PMI.
Source: House Banking Committee