Question:

What is the mortgage insurance law about?

Answer:

Mainly, the mortgage insurance law informs borrowers of the reasons to take PMI, sets the rules and the Homeowner's Protection Act (HPA) of 1998 enforces automatic cancellation of mortgage insurance premiums when certain level of equity is attained.

According to the mortgage insurance law:

  • Loans with LTV higher than 80% need PMI;
  • As little as 3% or zero down payment is possible with mortgage insurance allowing borrowers to buy a home now, rather than wait until they save the 20% for the down payment;
  • The HPA stipulates that borrowers can request mortgage insurance cancellation at achieving 20% equity, but lenders are also obligated to automatically cancel PMI under certain conditions;
  • VA and FHA loans have different rules for mortgage insurance. The Homeowner's Protection Act (HPA) of 1998 pertains to conventional loans only;

The lender or loan servicer is required by the mortgage insurance law to notify the borrower of their rights regarding private mortgage insurance at closing, every year and upon cancellation of PMI. Those disclosures' content depends on 1) who pays the PMI - borrower or lender; 2) if the loan is fixed or adjustable rate mortgage; or, 3) whether the loan is conventional or not.

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