PRIA, Government Policy, Made Personal

Summary

Private mortgage insurance (PMI) must be canceled or stopped when the borrower meets certain rules. The borrower must ask in writing, have a good payment history, be current on the loan, and give any proof the servicer asks for that the home’s value has not dropped and that the borrower’s equity has no second lien. PMI also ends automatically on the loan’s scheduled termination date if the borrower is current, or on the first day of the first month after the borrower becomes current. If neither of those happens, PMI cannot be required past the first day of the month after the midpoint of the loan’s amortization period, so long as the borrower is current. If the loan is changed, the dates are recalculated to match the new terms. Once PMI is canceled or ends, the borrower must stop paying within 30 days after the relevant cancellation or termination date or after required paperwork is provided. Any unearned PMI premiums must be returned to the borrower within 45 days. If an insurer holds unearned premiums, it must send them to the servicer within 30 days of being told the PMI ended. The usual cancellation and automatic rules do not apply to loans labeled high-risk at origination under Fannie Mae/Freddie Mac rules or by the lender, though those loans still end at the midpoint rule or when the scheduled balance reaches 77 percent of the original home value as described. A report to Congress about these high-risk exemptions was due 2 years after July 29, 1998. Any premiums due before cancellation can still be collected.

Title 12, §4902

Banks and Banking, Source: USLM XML via OLRC

(a)Borrower cancellation

A requirement for private mortgage insurance in connection with a residential mortgage transaction shall be canceled on the cancellation date or any later date that the mortgagor fulfills all of the requirements under paragraphs (1) through (4), if the mortgagor— (1)

(2)has a good payment history with respect to the residential mortgage;

(3)is current on the payments required by the terms of the residential mortgage transaction; and

(4)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)

(2)if the mortgagor is not current on the termination date, on the first day of the first month beginning after the date that 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 on residential mortgage transactions 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)Treatment of loan modifications

If a mortgagor and mortgagee (or holder of the mortgage) agree to a modification of the terms or conditions of a loan pursuant to a residential mortgage transaction, the cancellation date, termination date, or final termination shall be recalculated to reflect the modified terms and conditions of such loan.

(e)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)

(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.

(f)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 chapter 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).

(g)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 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 1454(a)(2) of this title, so as to require the imposition or continuation of a private mortgage insurance requirement beyond the terms specified in subsection (a) or (b) of this section; 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 the amortization schedule then in effect 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 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 residential mortgage or residential 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 July 29, 1998, 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.

(h)Accrued obligation for premium payments

The cancellation or termination under this section of the private mortgage insurance of a mortgagor shall not affect the rights of any mortgagee, servicer, or mortgage insurer to enforce any obligation of such mortgagor for premium payments accrued prior to the date on which such cancellation or termination occurred.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2000—Subsec. (a). Pub. L. 106–569, § 404(1)(A), inserted “or any later date that the mortgagor fulfills all of the requirements under paragraphs (1) through (4)” after “cancellation date” in introductory provisions. Subsec. (a)(3), (4). Pub. L. 106–569, § 404(1)(B)–(D), added par. (3) and redesignated former par. (3) as (4). Subsec. (b)(2). Pub. L. 106–569, § 405(b), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “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.” Subsec. (c). Pub. L. 106–569, § 403(a)(1), inserted “on residential mortgage transactions” after “requirement be imposed”. Subsec. (d). Pub. L. 106–569, § 402(c)(1)(B), added subsec. (d). Former subsec. (d) redesignated (e). Subsec. (e). Pub. L. 106–569, § 402(c)(1)(A), redesignated subsec. (d) as (e). Former subsec. (e) redesignated (f). Subsec. (e)(1)(B). Pub. L. 106–569, § 404(2), substituted “subsection (a)(4)” for “subsection (a)(3)”. Subsec. (f). Pub. L. 106–569, § 402(c)(1)(A), redesignated subsec. (e) as (f). Former subsec. (f) redesignated (g). Subsec. (f)(1)(B)(ii). Pub. L. 106–569, § 402(a)(2), substituted “the amortization schedule then in effect” for “amortization schedules”. Subsec. (g). Pub. L. 106–569, § 402(c)(1)(A), redesignated subsec. (f) as (g). Subsec. (g)(1). Pub. L. 106–569, § 403(a)(2)(A), struck out “mortgage or” after “do not apply to any residential” in introductory provisions. Subsec. (g)(2). Pub. L. 106–569, § 403(a)(2)(B), struck out “mortgage or” after “in connection with a residential”. Subsec. (g)(3). Pub. L. 106–569, § 403(a)(2)(C), substituted “residential mortgage or residential” for “mortgage or”. Subsec. (h). Pub. L. 106–569, § 405(c), added subsec. (h).

Statutory Notes and Related Subsidiaries

Effective Date

Section effective 1 year after July 29, 1998, see section 13 of Pub. L. 105–216, set out as a note under section 4901 of this title.

§4902 Termination of Private Mortgage Insurance