PMI Question

In regard to the initial PMI disclsoure for an ADJUSTABLE rate residential mortgage transaction, Exam Procedures state that:

The borrower's right to request cancellation of PMI on (i) the date the loan balance is first scheduled to reach 80% of the original value of the property based on the amortization schedule then in effect or (ii) the date the balance actually reaches 80% of the original value of the property based on actual payments. The notice must also state that the serviscer will notify the borrower when either (i) or (ii) occurs. 12 USC 4903(a)(1)(B)(i)
Also #11 on the exam procedures.

However I cannot find any requirements stating that we must send notice to the customer when an adjustable rate mortgage hits 80%. Although it states that the initial notice is required to state that we (the bank) will notify the borrower when 80% is reached, are we truly required to? Or am I missing the requirement for that disclosure?

On another note, could the same letter be sent out when a PMI Cancellation request has been accepted at 80% and when termination is completed at 78%?

However I cannot find any requirements stating that we must send notice to the customer when an adjustable rate mortgage hits 80%.


(B)if the transaction relates to an adjustable rate mortgage, a written notice that -

(i)the mortgagor may cancel the requirement in accordance with section 4902(a) of this title on the cancellation date, and that the servicer will notify the mortgagor when the cancellation date is reached;


That is your regulatory cite for having to notify the borrower when the loan reaches 80%.

That is what I was leaning toward. However, today I found the "Implementation Guide to PMI Cancellation - Understanding the HPA of 1998" From the Mortgage Bankers Association of America From 1999,2001.

This states, in regard to the Adj. Rate cancellation (80%) date notice, that "The Act's initial disclosure requirements for adjustable rate mortgages require the lender to inform the borrower that the borrower will be notified "when the cancellation date is reached" for his/her loan. PMI Act 4(a)(1)(B)(i). Although the Act does not contain a separate provision requiring that servicers give this notice, it would be reasonable to conclude that servicers should give this notice to adjustable rate mortgage borrowers as close to the cancellation date as is reasonably feasable. A model form "Notice of Cancellation Date for Adjustable Rate Mortgages" is set forth at Appendix C, Form C-9"

So, in my opinion it would be good to send this notice, especially since in the initial disclosure we say "you will be notified". But, would it be a regulatory violation for not notifying the customer with an Adjustable Rate loan that the loan has reached 80%? It says that the Act does not contain a separate provision requiring the notice be given, and just that it would be a good idea to do so.

Thoughts on the second question on the initial post?