What Is The Homeowner's Protection Act, And How Does It Affect Buyers?

The Homeowner Protection Act is a law that went into effect July 29, 1999.  This law was enacted to protect Borrowers who purchase a home with a Loan Product which required them to pay Private Mortgage Insurance (PMI).  The intent of the Homeowner Protection Act is to require Lenders to notify Borrowers of their right to cancel PMI payments and the requirements the Borrower will need to meet to be able to cancel the PMI.

Most homeowners are not very familiar with how their PMI payment can be canceled, and even less familiar on what is required of Lenders under the law.  Borrower who obtain a mortgage which requires PMI are given disclosures both at the time they apply for the mortgage and again at the Closing.  Both times, they are informed of how their PMI payment can be eliminated, but most buyers are in such a fog on the day of their mortgage application and on the day of the Closing, that they will most likely remember very little of what they were told and signed.

Because of this, the Homeowner Protection Act was enacted so buyers would continue to be informed by Lenders of their right to cancel PMI, and the requirements they need to meet to eliminate PMI monthly payment.  Under the Homeowner Protection Act Lenders must:

• Inform buyers in writing at the time of Closing that they have PMI as part of their monthly mortgage payment, and it can be canceled at some point.
• Explain to buyers how they can cancel the PMI payment in the future.
• Notify the buyer every year of their right to cancel PMI, and provide information on the cancellation process.
• Provide the buyer the reasons why they may be denied PMI cancellation when they apply for cancellation.

Some quick questions buyers should ask themselves to help determine if PMI cancellation is possible:

• Have they paid their mortgage down by at least 20% (80% Loan-To-Value (LTV))?
• Have they made improvements to the house which will increase the value?
• Are houses in their area selling at significantly higher prices?

It the answer to any of these questions are yes, then it would be wise to contact the Lender to order an appraisal to determine if PMI cancellation is possible.

NOTE:  The above pertains to Private Mortgage Insurance (PMI), the guidelines for canceling FHA Monthly Insurance Premiums (MIP) are different.  Also for FHA 30 year amortization loans originated after June 3, 2013 with less than a 10% downpayment, the MIP will be on the loan for the life of the loan.

If the Lender does not notifying the Borrower annually of their right to cancel PMI, then they should contact the Lender and inform them they in violation of the Homeowner Protection Act, or fill a complaint with their State Banking Commission.

I hope the above information helped to clarify What The Homeowner Protection Act Is, And How Does It Affect buyers?

Keith Turner

860-444-0650

keitht@mccuemortgage.com