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#191642 - 05/18/04 09:50 PM
PMI cancellation - 80%
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10K Club
Joined: Nov 2003
Posts: 12,846
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Borrower requested cancellation at 80%. Can investor require the PMI to be carried for a certain minimum period of time, such as two years from loan date? Or are they required to cancel immediately, once borrower requests at 80% or w/o request once loan paid down to 78%, even if this is shortly after loan origination (less than a year)?
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#191643 - 05/18/04 09:57 PM
Re: PMI cancellation - 80%
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10K Club
Joined: Aug 2002
Posts: 47,670
Bloomington, IN
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This will depend on your invenstor. I think, I haven't looked at it in a while, that Freddie requires certain requirments within the first 2 years and less restrict requirement in years 3 - 5.
You are under no regualtory obligation to cancel PMI at 80%. That is your decision.
Also, if the loan balance is prepaid to 78% before the "scheduled amortiaztion" would reach 78%, you are under no regulatory obligation to cancel PMI.
(18) Termination date
The term "termination date" means --
(A) with respect to a fixed-rate mortgage, 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 78 percent of the original value of the property securing the loan; and
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The opinions expressed are mine and they are not to be taken as legal advice.
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#191644 - 05/18/04 10:14 PM
Re: PMI cancellation - 80%
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10K Club
Joined: Nov 2003
Posts: 12,846
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Isn't there a difference in "termination" and "cancellation" (which is requested by the borrower) under the act?
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#191645 - 05/18/04 10:18 PM
Re: PMI cancellation - 80%
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Power Poster
Joined: Jul 2002
Posts: 5,568
New Jersey
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Yes. "Cancellation" may be requested by the borrower when the loan balance reaches 80% of the original property value. "Termination" is automatic when the loan balance reaches 78% of the original property value, EXCEPT for "high-risk" loans and loans that are delinquent.
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#191646 - 05/18/04 10:26 PM
Re: PMI cancellation - 80%
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10K Club
Joined: Nov 2003
Posts: 12,846
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Ok, the loan has not been delinquent (and was not high risk), but it is less than a year old. It is at 80%. Is the investor required to cancel on the customer's request?
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#191647 - 05/18/04 10:54 PM
Re: PMI cancellation - 80%
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Power Poster
Joined: Jul 2002
Posts: 5,568
New Jersey
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If the mortgagor has requested the cancellation in writing in advance of the cancellation date [Section 39a)(1) of the law], and if the loan balance has reached 80% of the original value based on the amortization schedule [Section 2(A)(i)and (B)(i)], or has reached 80% of the original value based on actual payments [Section 2(A)(ii) and (B)(ii)], and if there has been no 60-day late payment during the first 12 of the past 24 months or no 30-day late payment during the last 12 months [Section 2(4)(A)-(B) and Section 3(a)(2)], and if the mortgagor provides evidence that the value of the property is not less than the original property value [Section 2(10) and 3(a)(3)(A)], and if the mortgagor certifies that the subject property is unencumbered by any subordinate lien [Section 3(a)(3)(B)], then, yes, the mortgage insurance must be cancelled.
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#191648 - 05/19/04 01:36 AM
Re: PMI cancellation - 80%
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10K Club
Joined: Aug 2002
Posts: 47,670
Bloomington, IN
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Steve, I'm not sure if you and I agree or not, but unless the LTV has reached 80% or 78% based on the original amortization schedule there is no regulatory requirement to cancel PMI. You have to look at the definition of cancellation date and termination date.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#191649 - 05/19/04 01:01 PM
Re: PMI cancellation - 80%
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10K Club
Joined: Nov 2003
Posts: 12,846
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Dan, I think I agree with Steve. You are correct with regard to "termination". I think Steve is correct with regard to "cancellation". From Kirchman's suggested disclosure: Quote:
Attached is an amortization schedule for your loan. You may request cancellation of the private mortgage insurance on your loan on _________, which is the date your loan balance is first scheduled to be 80% of the present value of your property (the “scheduled amount”). If you make payments on the principal of your loan in addition to the scheduled payments and your loan balance reaches the scheduled amount before the scheduled date, you may request cancellation of the private mortgage insurance on that earlier date. Private mortgage insurance will be canceled if at the time of your request you have a good payment history, the value of your property has not declined from its present value, and there are no mortgages on the property junior to this mortgage.
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#191650 - 05/19/04 01:14 PM
Re: PMI cancellation - 80%
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Power Poster
Joined: Jul 2002
Posts: 5,568
New Jersey
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Quote:
Steve, I'm not sure if you and I agree or not, but unless the LTV has reached 80% or 78% based on the original amortization schedule there is no regulatory requirement to cancel PMI. You have to look at the definition of cancellation date and termination date.
Dan, that's what I initially thought, too. But after rereading the regulation, and the 2000 amendments thereto, I had to change my thinking. Here's what did it:
SEC.4901(2)(2): CANCELLATION DATE--The term "cancellation date" means (A)with respect to a fixed rate mortgage, at the option of the mortgagor, the date on which the principal balance of the mortgage--
(i) 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 80 percent of the original value of the property securing the loan; or
(ii) based solely on actual payments, [emphasis mine] reaches 80 percent of the original value of the property securing the loan.
The next paragraph states the same conditions for cancellation date of an adjustable rate mortgage.
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#191651 - 05/19/04 01:50 PM
Re: PMI cancellation - 80%
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10K Club
Joined: Aug 2002
Posts: 47,670
Bloomington, IN
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Sorry, but I still have to disagree:
SEC.4901(2)(2): CANCELLATION DATE--The term "cancellation date" means (A)with respect to a fixed rate mortgage, at the option of the mortgagor , the date on which the principal balance of the mortgage--
(i) 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 80 percent of the original value of the property securing the loan; or
(ii) based solely on actual payments, [emphasis mine] reaches 80 percent of the original value of the property securing the loan.
It is still my opinion that you are under no regulatory obligation to release the PMI until the appropriate LTVs are reached based on the original amortization schedule in relation to the original value of the property.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#191653 - 05/19/04 02:28 PM
Re: PMI cancellation - 80%
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Anonymous
Unregistered
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Maybe I'm not following you on this but isn't the specific reference to "actual payments" referring to the possibility that additional principal reductions may have been made (i.e. additional payments or payments greater than scheduled)? If that is the case, and the borrower has accelerated the principal reduction so that the balance is down to 80%, then cancellation, if requested, must be granted.
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#191654 - 05/19/04 02:39 PM
Re: PMI cancellation - 80%
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10K Club
Joined: Aug 2002
Posts: 47,670
Bloomington, IN
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Jill, the mortgagor would be the bank, the borrower would be the mortgagee. Anon, Quote:
If that is the case, and the borrower has accelerated the principal reduction so that the balance is down to 80%, then cancellation, if requested, must be granted.
I disagree. If the balance is accelerated then it is the bank's option whether to cancel PMI based on the acceleration or wait until the "cancellation date" based on the original amortization schedule.
As a side note: I see no reason why a bank would not agree to cancel the PMI in an accelerated payment scenario if the borrower met all conditions (except maybe for investor requirements). The point I'm trying to make is the bank is under no regulatory obligation (IMO) to do so until the cancellation date based on the amortization schedule.
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#191656 - 05/19/04 02:54 PM
Re: PMI cancellation - 80%
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Diamond Poster
Joined: Feb 2003
Posts: 2,362
Colorado
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Forget my above post, here are the definitions from the act itself:
(10) Mortgagee
The term "mortgagee" means the holder of a residential mortgage at the time at which that mortgage transaction is consummated.
(11) Mortgagor
The term "mortgagor" means the original borrower under a residential mortgage or his or her successors or assignees.
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#191657 - 05/19/04 02:55 PM
Re: PMI cancellation - 80%
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Anonymous
Unregistered
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Mortgagor has to be the borrower otherwise the regulation itself doesn't make sense. Here is Section 4902 from HOEPA.
(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) 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) 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.
Now, if the mortgagor is the lender, how does this section make sense?
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#191658 - 05/19/04 03:03 PM
Re: PMI cancellation - 80%
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10K Club
Joined: Aug 2002
Posts: 47,670
Bloomington, IN
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Then based on my misunderstanding of mortgagor, I have to stand corrected. (I should have read a little further in the definitions.  ) I apologize for the confusion.
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The opinions expressed are mine and they are not to be taken as legal advice.
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