1998 PMI ELIMINATION LAW

  • 75% of all homeowners with mortgages are paying Private Mortgage Insurance (PMI)!

  • You are probably paying $40 - $100 per month (or more) in needless Mortgage Insurance that was set up when you first bought your home!  If you did not put down 20% or more when you first bought your home, you are probably making monthly PMI payments included in your mortgage payment. 

  • A 1998 federal law requires lenders to allow you to drop your Mortgage Insurance!
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  • To drop your PMI, all you need is an appraisal done on your house that shows you have 22% equity or more. You're allowed to include increases in property values, improvements, additions, swimming pools, etc!!! But, first check with your lender and get this in writing.
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  •   Check out the Mortgage/PMI Calculator here to estimate how much PMI you can save.
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  • How Can I Cancel my PMI?
    Under the Homeowners Protection Act of 1998, PMI on most loans that originated after July 29, 1999 should allow PMI to terminate automatically once you have 22 percent equity in your home. That means the amount you still owe on the loan has been reduced to approximately 78 percent of the original value of the property. If your loan originated before July 29, 1999, you are not covered by the automatic termination requirement and your lender will not automatically terminate PMI coverage once your equity reaches 22 percent.   Under the law, homeowners may also request cancellation when their equity reaches 20 percent. There are two ways to reach the the amount of equity you need to cancel PMI.  You could double up on your monthly mortgage payments, or you could hire a state licensed real estate appraiser to do a new appraisal for you.. If the new appraisal shows a higher market value that gives you 20 percent equity or more, you may be eligible to cancel PMI. Although the new law does not require a mortgage lender to consider the current property value for loans originating after July 29, 1999.  You should always begin the process by contacting your lender first.  
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    SEC. 3. (12 USC 4902.) TERMINATION OF PRIVATE MORTGAGE INSURANCE. 

     (a) Borrower Cancellation.--A requirement for private mortgage 
insurance in connection with a residential mortgage transaction shall be 
canceled on the cancellation date, if the mortgagor--

                (1) submits a request in writing to the servicer that 
        cancellation be initiated;
            (2) has a good payment history with respect to the 
        residential mortgage; and
            (3) has satisfied any requirement of the holder of the 
        mortgage (as of the date of a request under paragraph (1)) for--
                    (A) evidence (of a type established in advance and 
                made known to the mortgagor by the servicer promptly 
                upon receipt of a request under paragraph (1)) that the 
                value of the property securing the mortgage has not 
                declined below the original value of the property; and
                    (B) certification that the equity of the mortgagor 
                in the residence securing the mortgage is unencumbered 
                by a subordinate lien.

    (b) Automatic Termination.--A requirement for private mortgage 
insurance in connection with a residential mortgage transaction shall 
terminate with respect to payments for that mortgage insurance made by 
the mortgagor--

                (1) on the termination date if, on that date, the mortgagor 
        is current on the payments required by the terms of the 
        residential mortgage transaction; or
            (2) on the date after the termination date on which the 
        mortgagor becomes current on the payments required by the terms 
        of the residential mortgage transaction.

    (c) Final Termination.--If a requirement for private mortgage 
insurance is not otherwise canceled or terminated in accordance with 
subsection (a) or (b), in no case may such a requirement be imposed 
beyond the first day of the month immediately following the date that is 
the midpoint of the amortization period of the loan if the mortgagor is 
current on the payments required by the terms of the mortgage.

        (d) No Further Payments.--No payments or premiums may be required 
from the mortgagor in connection with a private mortgage insurance 
requirement terminated or canceled under this section--

                (1) in the case of cancellation under subsection (a), more 
        than 30 days after the later of--
                    (A) the date on which a request under subsection 
                (a)(1) is received; or
                    (B) the date on which the mortgagor satisfies any 
                evidence and certification requirements under subsection 
                (a)(3);

                (2) in the case of termination under subsection (b), more 
        than 30 days after the termination date or the date referred to 
        in subsection (b)(2), as applicable; and
            (3) in the case of termination under subsection (c), more 
        than 30 days after the final termination date established under 
        that subsection.

    (e) Return of Unearned Premiums.--

                (1) In general.--Not later than 45 days 
        after the termination or cancellation of a private mortgage 
        insurance requirement under this section, all unearned premiums 
        for private mortgage insurance shall be returned to the 
        mortgagor by the servicer.

                (2) Transfer of funds to servicer.--Not 
        later than 30 days after notification by the servicer of 
        termination or cancellation of private mortgage insurance under 
        this Act with respect to a mortgagor, a mortgage insurer that is 
        in possession of any unearned premiums of that mortgagor shall 
        transfer to the servicer of the subject mortgage an amount equal 
        to the amount of the unearned premiums for repayment in 
        accordance with paragraph (1).

    (f) Exceptions for High Risk Loans.--

                (1) In general.--The termination and cancellation provisions 
        in subsections (a) and (b) do not apply to any residential 
        mortgage or mortgage transaction that, at the time at which the 
        residential mortgage transaction is consummated, has high risks 
        associated with the extension of the loan--

                        (A) as determined in accordance with guidelines 
                published by the Federal National Mortgage Association 
                and the Federal Home Loan Mortgage Corporation, in the 
                case of a mortgage loan with an original principal 
                balance that does not exceed the applicable annual 
                conforming loan limit for the secondary market 
                established pursuant to
                section 305(a)(2) of the Federal Home Loan Mortgage 
                Corporation Act, so as to require the imposition or 
                continuation of a private mortgage insurance requirement 
                beyond the terms specified in subsection (a) or (b) of 
                section 3; or

                        (B) as determined by the mortgagee in the case of 
                any other mortgage, except that termination shall 
                occur--

                              (i) with respect to a fixed rate mortgage, on 
                      the date on which the principal balance of the 
                      mortgage, based solely on the initial amortization 
                      schedule for that mortgage, and irrespective of 
                      the outstanding balance for that mortgage on that 
                      date, is first scheduled to reach 77 percent of 
                      the original value of the property securing the 
                      loan; and

                              (ii) with respect to an adjustable rate 
                      mortgage, on the date on which the principal 
                      balance of the mortgage, based solely on 
                      amortization schedules for that mortgage, and 
                      irrespective of the outstanding balance for that 
                      mortgage on that date, is first scheduled to reach 
                      77 percent of the original value of the property 
                      securing the loan.

                (2) Termination at midpoint.--A private mortgage insurance 
        requirement in connection with a residential mortgage or 
        mortgage transaction described in paragraph (1) shall terminate 
        in accordance with subsection (c).

                (3) Rule of construction.--Nothing in this subsection may be 
        construed to require a mortgage or mortgage transaction 
        described in paragraph (1)(A) to be purchased by the Federal 
        National Mortgage Association or the Federal Home Loan Mortgage 
        Corporation.

                (4) GAO report.--Not later than 2 years after the date of the 
        enactment of this Act, the Comptroller General of the United States 
        shall submit to the Congress a report describing the volume and 
        characteristics of residential mortgages and residential mortgage 
        transactions that, pursuant to paragraph (1) of this subsection, are 
        exempt from the application of subsections (a) and (b). The report 
        shall--

                        (A) determine the number or volume of such mortgages 
                and transactions compared to residential mortgages and 
                residential mortgage transactions that are not 
                classified as high-risk for purposes of paragraph (1); 
                and

                        (B) identify the characteristics of such mortgages 
                and transactions that result in their classification 
                (for purposes of paragraph (1)) as having high risks 
                associated with the extension of the loan and describe 
                such characteristics, including--

                              (i) the income levels and races of the 
                      mortgagors involved;
                          (ii) the amount of the downpayments involved 
                      and the downpayments expressed as percentages of 
                      the acquisition costs of the properties involved;
                          (iii) the types and locations of the 
                      properties involved;
                          (iv) the mortgage principal amounts; and
                          (v) any other characteristics of such 
                      mortgages and transactions that may contribute to 
                      their classification as high risk for purposes of 
                      paragraph (1), including whether such mortgages 
                      are purchase-money mortgages or refinancings and 
                      whether and to what extent such loans are low-
                      documentation loans.