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The Homeowner’s Protection Act (HPA) generally applies to residential conventional mortgage transactions taking place after July 29, 1999. There is however requirements for loans obtained before that date which will be outlined in my next Blog.
The HPA laws don’t apply VA or FHA government-guaranteed loans. There are also different requirements for loans classified as “high-risk.” Fannie Mae and Freddie Mac are corporations chartered by Congress to create a continuous flow of funds to mortgage lenders in support of homeownership. The HPA doesn’t outline what a “high risk” loan is; instead it allows Fannie Mae and Freddie Mac to issue guidance for mortgages that conform to secondary market “high risk” loan limits.
What Is a Residential Mortgage?
There are four requirements for a transaction to be considered a residential mortgage transaction:
- The mortgage or deed of trust must be created or retained ;
- The property securing the loan must be a single-family dwelling;
- The single-family dwelling must be the primary residence of the borrower; and,
- The purpose of the transaction must be to finance the acquisition, initial construction, or refinancing of that dwelling.
How Is PMI Cancelled or Terminated?
- Under HPA, homeowners may request cancellation of PMI when the loan is paid down to 80 percent of the original purchase price or appraised value when the loan was obtained, whichever is less. Homeowners are required to have a good payment history and have no 30 day late mortgage payments for a year, or 60 days late within two years. Some lenders require proof the value of the property has not declined below the original value and there are no second mortgages or home equity loans.
- HPA, requires mortgage lenders to automatically cancel PMI coverage on most loans, when paid down to 78 percent of the value. If loan payments are delinquent on the date of automatic termination, lenders must terminate coverage as soon the loan becomes current. PMI coverage must terminate within 30 days of cancellation or the automatic termination date. If a home buyer has a high risk loan, mortgage lenders are required to automatically cancel PMI coverage once the mortgage is paid down to 77 percent of the original value of the property, when the loan is current.
- Final Termination: The HPA, also requires PMI coverage to be removed when the loan reaches the midpoint of the amortization period. For a 30-year loan with 360 monthly payments, that midpoint would be after 180 payments have been made.
For Loans Obtained on or after July 29, 1999
The HPA established three times lenders or servicer must notify consumers of their rights. At the time the loan is closed, annually, and when it is time for cancellation or termination of PMI.
The content of the disclosures varies depending on:
- PMI is “borrower-paid PMI” or “lender-paid PMI,”
- Is the loan is classified as a “fixed rate mortgage” or “adjustable rate mortgage,” or
- If the loan is designated as “high risk” or not.
The HPA’s cancellation and automatic termination rules don’t apply to loans made before July 29, 1999. The next Blog will cover some of the issues for people with loans prior to the passage of HAP. Look forward to future Blogs that will help if the value of your home has increased.
Related Blog:
- What is PMI–Private Mortgage Insurance?
- Property Mortgage Insurance (PMI) For Loans Opened Before July 1999.
Glossary of Insurance Terms:
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Families.com Blogs are for informational purposes only. Families.com assumes no responsibility for consumer choices. Consumers are reminded that it is their responsibility to research their choices properly and speak to a certified insurance professional prior to making any decision as important as an insurance purchase.