With regards to the timing of PMI cancellation requested by the borrower, I have seen posts where the examples of yearly disclosure to the borrower mentions that 5 years must have elapsed since consummation before the borrower can request the cancellation. Where in the regulation is this allowed? I understand that Fannie and Freddie can require the 5 years but I have read the reg multiple times and reviewed CFPB Bulletin 2015-03 and nothing in either points to being able to require any minimum amount of time once the LTV reaches 80%. I feel I'm missing something...

Are you confusing that with escrow cancellation?

Are you confusing the 5 year requirement to cancel an escrow account for HPMLs with cancellation of PMI under HOPA?

No, I definitely saw threads where this was part of one of the conditions for borrower cancellation. I'll try and find them again. I just did a review of our disclosures and found that same restriction on our forms. I'm relatively new to this bank so I'm not sure where the form came from. My old bank didn't do PMI so I made sure to read the reg and check the threads.

There is no five year period in the law.

12 USC 4902. Termination of private mortgage insurance

(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.

Can't find the thread with the example disclosure but here is response in a thread :

#2169539 - 03/22/18 01:51 PM Re: Private Mortgage Insurance 12 USC Code 49 [Re: Baker]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 45450
Loc: Bloomington, IN
HOPA does not dictate when PMI is required only when it is required to be canceled or terminated.

https://www.fdic.gov/regulations/laws/rules/2000-8700.html (you may want to also check for any possible state requirements)

2 A loan-to-value limit has not been established for permanent mortgage or home equity loans on owner-occupied, 1- to 4-family residential property. However, for any such loan with a loan-to-value ratio that equals or exceeds 90 percent at origination, an institution should require appropriate credit enhancement in the form of either mortgage insurance or readily marketable collateral.

You can voluntarily cancel PMI at anytime if your FI is willing to accept the risk. The cancellation would be subject to any investor's guidelines for PMI and Freddie has a 2 & 5 year (based on LTV) seasoning requirement. If you don't want to follow Freddie's requirements then you would have to take the loan back into your portfolio.

If you want to use current value then you must obtain a current appraisal (paid for by the borrower) to determine the value of the property at the time the borrower's requests cancellation. In other words an aged appraisal report would not suffice. If I remember correctly if the loan has aged 2 years but less than 5 Freddie allows PMI to be cancelled at a 75% LTV and if it has aged 5 or more years PMI can be cancelled at an 80% LTV. This of course is assuming the PMI has not met the cancellation or automatic termination requirement under HOPA within those time frames
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The opinions expressed are mine and they are not to be taken as legal advice.

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I guess this one answers my question. Sometimes changing the search parameters makes all the difference. I appreciate your time.

I believe the 2 year seasoning in FNMA is:

a first lien mortgage loan closed before July 29, 1999 and is secured by a one-unit principal residence or second home delivered under a negotiated contract that prohibits the cancellation of MI until a specified term has elapsed and the LTV ratio eligibility criterion is met on the date the mortgage loan balance actually reaches 75% of the original value of the property, if the mortgage loan is seasoned for two or more years, even if the original specified term has not elapsed.

Which is sort of a moot point at this point in time 20 years later. All other primary residence loans follow HOPA requirements. I did not bother to go to the Freddie Serving Guidelines, but I cannot imagine they are much different.

The 2 & 5 years seasoning references I made in the above post are Fannie & Freddie requirements. They are not HOPA requirements. As I said in that post the bank can cancel PMI anytime they want if they are willing to accept the risk.

The Freddie requirements can be found at:

https://guide.freddiemac.com/app/guide/content/a_id/1000942

We are rewriting our HOPA/PMI cancellation procedures, which currently include the 2 year seasoning requirement mentioned above. Since we service many Fannie Mae loans, would this requirement trump HOPA? Is it a risk decision?

If you are servicing the loans for Fannie then you will have to follow their guidelines for borrower requested cancellation.

The plot thickens with our HOPA/PMI procedures.....For borrowers paying PMI with their monthly payment, we are collecting two months of premium as a cushion in their escrow. I discovered our Loan Services Department is not refunding this cushion when the PMI is cancelled/terminated. Since these funds were in escrow and used to pay other expenses (taxes, insurance), is that a violation of HOPA, specifically unearned premiums? The funds were ultimately used to the borrower's benefit.

There is no requirement to refund the specific payments out of the escrow account. The account would just be rebalanced at the next analysis date. No different than if the insurance or tax payment went down.

The two collected escrow payments are unearned premiums, in addition you have this from the OI to Reg. Z 1026.18(s);

For example, assume that under applicable law, mortgage insurance must terminate after the 130th scheduled monthly payment, and the creditor collects at closing and places in escrow two months of premiums. If, under the legal obligation, the creditor will include mortgage insurance premiums in 130 payments and refund the escrowed payments when the insurance is terminated, payment amounts disclosed through the 130th payment should reflect premium payments. If, under the legal obligation, the creditor will apply the amount escrowed to the two final insurance payments, payments disclosed through the 128th payment should reflect premium payments. The escrow amount reflected on the disclosure should include mortgage insurance premiums even if they are not escrowed and even if there is no escrow account established for the transaction.

Then there is this from HOPA 4902:

(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.

Good catch Dan - that is a reason I guess that I never see a cushion collected for MI payments.

That's why we stopped collecting cushions for PMI.