§4905 Disclosure Requirements for Lender Paid Mortgage Insurance

Summary

Lenders must give written warnings to borrowers when private mortgage insurance is paid by someone else instead of the borrower. A "borrower paid mortgage insurance" means the borrower pays the private mortgage insurance. A "lender paid mortgage insurance" means someone other than the borrower pays it. A "loan commitment" means the lender’s written approval of the loan, with any conditions. By the time the lender gives the loan commitment, the lender must tell the borrower in writing that lender-paid insurance is different from borrower-paid insurance: the borrower usually cannot cancel lender-paid insurance; it often causes a higher interest rate; it ends only if the loan is refinanced (as the Federal Reserve’s rules define), paid off, or otherwise ends; and both types have pros and cons, which must be shown in a simple 10-year cost comparison using current interest and home value trends. The notice must also say lender-paid insurance may be tax-deductible if the borrower itemizes. Within 30 days after the date when borrower-paid insurance would have ended, the loan servicer must send a notice suggesting the borrower check refinancing or other ways to remove private mortgage insurance. Servicers may use standard forms for these notices.