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Apply Refund for PMI Payments towards Past Due?

If a presently delinquent, residential mortgage borrower is owed a refund for unearned PMI payments associated with the automatic cancellation provision, can the bank apply those proceeds towards the past due payments on the loan?

Answer by Randy Carey: I would be asking your legal counsel. If you are in a single action State, offsetting these proceeds may bar or jeopardize future collection activities.


Answer by Dan Persfull: Under HOPA if they are past due they are not entitled to have the PMI terminated. Once the account is current then you must terminate the PMI and refund any unearned premiums to the borrower. There are no provisions in HOPA to apply the unearned premium to the loan.(b)Automatic terminationA requirement for private mortgage insurance in connection with a residential mortgage transaction shall terminate with respect to payments for that mortgage insurance made by the mortgagor -

(1)on the termination date if, on that date, the mortgagor is current on the payments required by the terms of the residential mortgage transaction; or

(2)if the mortgagor is not current on the termination date, on the first day of the first month beginning after the date that the mortgagor becomes current on the payments required by the terms of the residential mortgage transaction.

(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.

First published on 3/25/13

First published on 03/25/2013

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