Cancelling Mortgage Insurance: Understanding the Homeowners Protection Act (HPA)

If you’re a homeowner looking to cancel your mortgage insurance, understanding the Homeowners Protection Act of 1998 (HPA) is crucial. This act provides guidelines for both borrower-requested and lender-required cancellation of mortgage insurance for single-family primary residences whose sales closed on or after July 29, 1999.

Borrower-Requested Cancellation

Under the HPA, borrowers can request the cancellation of their mortgage insurance. Here’s how it works:

1. Written Request: The borrower must submit a written request to the lender.
2. Cancellation Criteria: The lender must cancel the mortgage insurance policy either:
   • On the date the mortgage loan balance is first scheduled to reach 80% of the original value, based on the initial amortization schedule, regardless of the outstanding balance.
   • On the date the mortgage loan balance actually reaches 80% of the original value.

For purchase transactions, the original property value is the lesser of the property sales price and the appraised value. For refinance transactions, the original value is the appraised value.

Additional Requirements:

• The property value must not have declined.
• No subordinate liens should exist.
• The borrower must have a good payment history.

Lender-Required Cancellation

Lenders are also required to cancel mortgage insurance under certain conditions:

1. Automatic Cancellation: The lender must automatically cancel the mortgage insurance policy:
   • When the mortgage loan balance is first scheduled to reach 78% of the original value, based on the initial amortization schedule.
   • If the borrower is current on their mortgage payments.

Different requirements may apply to loans designated as “high risk” at origination.

Cancelling Mortgage Insurance Using Current Value

While the HPA does not address cancellation based on current property value, individual investors like Fannie Mae and Freddie Mac have their own criteria:

1. Seasoning Period: The loan must be seasoned for at least 2 years.
2. Payment History: Borrowers must have an acceptable payment history.
3. Loan-to-Value (LTV) Ratio:
   • If less than 5 years have elapsed since the loan closed, the LTV based on a current appraisal must be 75% or lower.
   • If more than 5 years have elapsed, the LTV must be 80% or lower.

Borrowers must submit a written request and provide a current value estimate acceptable to their lender.

Understanding these guidelines can help you navigate the process of cancelling your mortgage insurance, potentially saving you money in the long run. If you have any questions or need further assistance, feel free to reach out!

I hope this helps! If you need any more details or have other questions, just let me know

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