9.2 Homeowners Protection Act and PMI termination

Identify borrower-paid private mortgage insurance

The Homeowners Protection Act (HPA) governs cancellation and termination of private mortgage insurance for covered residential mortgage transactions. It is not a rule for cancelling homeowners hazard insurance, flood insurance or every government mortgage insurance premium. Determine whether the loan, property, date and insurance arrangement fall within the statute. Borrower-paid and lender-paid mortgage insurance have different treatment, and high-risk loans have special provisions.

For ordinary covered transactions, distinguish borrower-requested cancellation, automatic termination and final termination. Each uses a different trigger and conditions. A borrower’s request for cancellation is not the only event the servicer needs to monitor. Conversely, reaching a balance level does not erase the conditions applicable to the requested-cancellation route.

Original value and the eighty-percent request

Original value generally uses the lesser of the contract sales price and appraised value at consummation for a purchase, with a separate rule for refinances. It is not automatically the most recent market estimate. A borrower can request cancellation when the balance is scheduled to reach, or actually reaches through payments, 80% of original value, subject to the statute’s conditions.

Those conditions include a written request, a good payment history, being current and the required evidence concerning the property’s value and absence of subordinate liens. The statute defines good payment history with specified delinquency lookback periods. A servicer should apply those periods accurately rather than invent a requirement that the borrower never had any late payment at any time.

For example, with original value of 300,000 dollars, eighty percent is 240,000 dollars. If actual principal reaches that amount early, the borrower may have a cancellation route if the remaining conditions are met. A property appreciation estimate alone does not convert the statutory original value into a new number. Investor or contractual policies can offer other cancellation opportunities, but distinguish those from the HPA’s minimum protections.

Automatic termination at seventy-eight percent

PMI generally terminates automatically on the date the principal balance is scheduled to reach 78% of original value, if the borrower is current. For fixed-rate loans, the relevant original amortization schedule governs this ordinary trigger; adjustable-rate loans require the statutory schedule treatment. If the borrower is not current on the scheduled termination date, termination occurs as provided when the borrower becomes current.

At an original value of 300,000 dollars, the simple seventy-eight-percent benchmark is 234,000 dollars. Do not substitute the eighty-percent request threshold, current appraised value or a voluntary early principal payment for the ordinary scheduled automatic trigger. The distinction explains why a borrower who pays ahead may request cancellation before the automatic termination date.

Automatic termination is not conditioned on the same property-value and subordinate-lien evidence used for requested cancellation. A servicer should not demand a new appraisal in every automatic-termination case merely because its request workflow normally asks for one.

Final termination and high-risk treatment

The midpoint protection generally ends PMI after the midpoint of the amortization period if the borrower is current, with the statutory treatment if the borrower later becomes current. This matters where a balance-based trigger has not ended insurance, including relevant high-risk treatment. For a thirty-year amortization period, the midpoint is fifteen years, but use the actual loan’s amortization period and applicable modifications rather than a memorized date.

High-risk classifications have statutory conditions and different cancellation or termination treatment. A lender cannot simply label every profitable PMI account high risk to avoid the ordinary protections. Identify the classification at the required time and apply the governing standard. Modifications and refinances likewise need specific analysis of the schedule and original-value rules.

Disclosures, refunds and servicing controls

HPA requires initial disclosures appropriate to the loan and annual information about cancellation and termination rights for applicable borrower-paid PMI accounts. There are notices when PMI ends and when a cancellation or termination request cannot be granted, with the required reasons and information. Review the actual statutory notice triggers and timing rather than assuming every communication has the same thirty-day period.

Unearned PMI premiums must be handled within the statutory refund framework. Reconcile the servicer and insurer records, stop future premiums when required and confirm the customer receives the amount due. A system flag marked cancelled is not evidence that charges ceased or that an overpayment was refunded. Test both the decision and the cash effect.

A monitoring population should include accounts near scheduled thresholds, early principal payments, delinquency cures, modifications, high-risk designations and closed or transferred servicing. Validate dates and balances against the schedule. If the bank discovers delayed termination, determine the affected population, required refunds and root cause rather than addressing only the complaining borrower.

CFPB explanation of PMI cancellation and termination and official HPA examination procedures support these distinctions. Remember the three routes and their conditions before choosing a servicing action.