Steps for Terminating PMI Clarified in CFPB Bulletin

by devteam August 6th, 2015 | Share

Saying that consumers should not be billed unnecessarily forrnprivate mortgage insurance (PMI) the Consumer Financial Protection Bureau hasrnissued guidance to servicers about terminating the requirement for borrowers tornmaintain it and outlined procedures for cancelling policies.  The CFPB bulletin clarifies some requirements of the Homeowners Protection Act and isrnintended to help servicers comply with the law but does not create any newrnrules or requirements.</p

Homernbuyers are generally required to carry a PMI policy if they make a downpaymentrnof less than 20 percent of the purchase price (or the appraised value, if it’s lower)*.  PMI protects the lender if thernborrower stops making payment and the premiums for the policy are added to thernborrower’s monthly mortgage payment. Prior to passage of the HomeownersrnProtection Act of 1998 some lenders allowed homebuyers to cancel their PMI whenrnthey reached an appropriate level of equity while others kept it in place forrnthe life of the loan.  The Act set uniform nationwide standards for PMI cancellation and termination. </p

CFPB saidrnit has identified substantial industry confusion over PMI cancellation andrntermination requirements in the Act and its examinations have identified violationsrnof several of its provisions.   The bulletin, which can be read in itsrnentirety here,rnclarifies the conditions that borrowers must meet, in addition to building thernnecessary equity, to quality for termination and sets out conditions for arnborrower requested termination and one that is required to occurrnautomatically.  </p

CFPB Director Richard Cordray said, “We willrncontinue to supervise mortgage servicers to ensure they are treating borrowersrnfairly, and today’s guidance should help servicers come into compliance withrnthe Homeowners Protection Act.” </p

*PMI is not the same as FHA MI, which is required on ALL FHA loans regardless of term or down-payment.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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