Private Mortgage Insurance

Return to Consumer Fraud homepage on SSEM.COM

Private Mortgage Insurance, or PMI, is insurance that mortgage lenders frequently require from most homebuyers that take out a mortgage loan in an amount in excess of 80 percent of a home's appraised value. In other words, buyers with less than a 20 percent down payment are normally required to have private mortgage insurance.

However, some mortgage lenders and insurers engage in unlawful practices when they fail to terminate private mortgage insurance once the amount owed on the loan is less than 80 percent of the home's appraised value. Below, you will find some information regarding private mortgage insurance. If you believe you have been treated unlawfully in connection with private mortgage insurance, contact us using the form below.

Homeowners Protection Act of 1998

What disclosures does the Home Owners Protection Act of 1998 require?

Homeowners Protection Act of 1998

The Homeowners Protection Act of 1998, which became effective in 1999, establishes rules for automatic termination and borrower cancellation of private mortgage insurance on home mortgages. For home mortgages signed on or after July 29, 1999, your private mortgage insurance must (with certain exceptions) be terminated automatically when you reach 22 percent equity in your home based on the original property value, if your mortgage payments are current. Your private mortgage insurance also can be cancelled when you request (with certain exceptions) when you reach 20 percent equity in your home based on the original property value, if your mortgage payments are current.

If you signed your mortgage before July 29, 1999, you can ask to have the private mortgage insurance cancelled once you exceed 20 percent equity in your home. But, federal law does not require your lender or mortgage servicer to cancel the insurance. There are, however, some additional disclosure requirements for mortgages signed before this time period.

Return to the top

What disclosures does the Homeowners Protection Act of 1998 require?

For mortgages signed on or after July 29, 1999, the Homeowners Protection Act of 1998 establishes the following three different times when a lender or servicer must notify a borrower of his or her rights: at loan closing, annually, and upon cancellation or termination of private mortgage insurance.

The content of these disclosures varies depending on whether: (1) the private mortgage insurance is "borrower-paid PMI" or "lender-paid PMI," (2) the loan is classified as a "fixed rate mortgage" or "adjustable rate mortgage," or the loan is designated as "high risk" or not.

At loan closing, lenders are required to disclose all of the following to borrowers:

The right to request cancellation of Private Mortgage Insurance and the date on which this request may be made
The requirement that Private mortgage insurance be automatically terminated and the date on which this will occur
Any exemptions to the right to cancellation or automatic termination
A written initial amortization schedule (fixed-rate loans only)

Annually, your mortgage loan servicer must send borrowers a written statement that discloses:

The right to cancel or terminate private mortgage insurance
An address and telephone number to contact the loan servicer to determine when private mortgage insurance may be cancelled

When private mortgage insurance is cancelled or terminated, a written notification must be sent to the borrower stating that:

Private mortgage insurance has been terminated, and the borrower no longer has private mortgage insurance coverage
No further private mortgage insurance premiums are due

For loans signed before July 29, 1999, an annual statement must be sent to borrowers explaining that under certain circumstances private mortgage insurance may be cancelled. Additionally, the statement should provide an address and telephone number to contact the mortgage servicer to determine whether or not private mortgage insurance may be cancelled.

The information above was obtained from the Federal Reserve Bank of Chicago.

Return to the top

If you believe you have been treated unlawfully in connection with private mortgage insurance please use the form below to contact our law firm.