An investor is insisting that PMI is required for 2 years after closing regardless of whether the loan amount goes to 80% or below. We have a borrower who will need PMI at closing, however they will close on their current property the following week and will make a large principal balance dropping the LTV to 65%. Our MI Rep. says that it can be cancelled as soon as they are below 80%, however, the investor says they need to keep it for 2 years minimum. Could someone please give me some guidance on this?

Thank you.

Here is a link to the Homeowner's Protection Act itself:

https://www.fdic.gov/news/news/inactivefinancial/1999/useftp.pdf

Is the loan consider High Risk?

The investor makes the rules

Seems like requiring 2 years would be a violation if they request a cancellation and are below 80% and meet the requirements, but it is quite possible I'm missing something.

12 USC 4902(a)
(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;
(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.

12 USC 4901 (2)
(2) Cancellation dateThe 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, reaches 80 percent of the original value of the property securing the loan; and
(B) with respect to an adjustable rate mortgage, at the option of the mortgagor, the date on which the principal balance of the mortgage—
(i) 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 80 percent of the original value of the property securing the loan; or
(ii) based solely on actual payments, first reaches 80 percent of the original value of the property securing the loan.

Is it subject to HOPA requirements (most notably not high risk single-family dwelling that serves as a borrower’s principal residence)? Did you give them the PMI disclosure saying the had the right to request cancelation at 80%?

If so, I'd say there might be a problem. If not, then investor makes the rules.

I agree that the investor makes the rules, but they might have problems if those rules directly violate a regulation.

Who are you dealing with at the investor's? Send the link and citation above and ask that it be escalated to the Compliance Division at this particular investor. Specify that you need the regulatory citation that allows them to require the two years even after the loan is paid down below the required percentage. Betting their tune changes.