Written By: Stacey Sprain, Op-Ed Writer
For the past two weeks, I have offered a series on private mortgage insurance cancellation, have explained the regulations involved and have offered some tips and tools to help consumers understand their rights regarding cancelling private mortgage insurance coverage for conventional loans.
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
This week, for the final article in the three-part series, I offer MI cancellation information for FHA loans and will end the series with a helpful list of consumer resources for MI cancellation materials.
Discontinuing Monthly Mortgage Insurance Premium Payments for FHA Loans
Effective for all loans closed on or after January 1, 2001, FHA's annual mortgage insurance premium will automatically cancel once the unpaid principal balance, excluding the upfront MIP, reaches 78 percent of the lower of the initial sales price or appraised value on the FHA-insured loan.
When borrowers pay down their outstanding mortgage balance by making additional principal payments to their loans, they may be eligible for cancellation of the mortgage insurance sooner. Those loans reaching the 78 percent loan to value threshold sooner than projected (but not sooner than five years from the date of origination except for 15 year term mortgages) due to advanced payments of principal will have the annual premium collections canceled upon the servicing lender submitting supporting information to FHA following the borrower's request provided that the borrower has not been more than 30 days delinquent on the mortgage during the previous twelve months.
For FHA MI cancellation, borrowers are not able to utilize new appraised values or AVMs to request review of their account for MI cancellation as is available for conventional MI cancellation. The only way a borrower can cancel their MI aside from reaching the 78% loan to value threshold is to refinance out of the current FHA-insured loan. As with conventional mortgage insurance cancellation processes, the borrowers must contact and work with their loan servicers to request a review of their account for MI cancellation and to check on when their loan-to-value will meet the 78% threshold. Borrowers may utilize the same sample letter formats I provided in last week’s article.
On a side note, FHA lenders are able to access the borrower’s MI cancellation date by pulling a Case Query for the borrower’s FHA case in FHA Connection. The Case Query result provides a data field with the date of automatic MI cancellation. Borrowers should also be able to tell when the MI will drop off their loan by reviewing their Truth-in-Lending statement, assuming the lender has provided the correct amortization terms with an indication for MI to drop off at 78% loan-to-value and assuming the borrower had not applied additional principal payments outside of their original repayment plan.
Helpful Consumer Resources re: Mortgage Insurance Cancellation
• Federal Reserve Brochure: Private Mortgage Insurance (PMI)
• Federal Reserve 11 Page Thorough Explanation of HPA
• Federal Trade Commission Bulletin: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
• Consumer Finance and Protection Bureau- Consumer Laws and Regulations: Homeowners Protection Act (HPA)
• Refer to the Website- Private MI.com This site provides simple, easy to comprehend explanations of the HPA laws and provides sample letters consumers can use to request review of their loan for cancellation of PMI. I find this website to present the information in very easy to understand format.
• FHA Mortgagee Letters 2000-38 and 2000-46 (with Attachment)
Private mortgage insurers like Essent Guaranty, Genworth, MGIC and UG also provide MI informational materials and information about MI cancellation.
About The Author
Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution.
