Homeowner�s Protection Act

An act of Congress.

In 1998, Congress passed the new Homeowner's Protection Act to prevent loan servicers from collecting unnecessary PMI premiums and to protect borrowers from being overcharged. The new PMI Act took effect on July 29, 1999. There's one catch. The law applies only to homeowners with new loans originated after July 29, 1999 (and who meet specific requirements to have their PMI cancelled).

If you took out your home loan prior to July 29, 1999, the new law does NOT cover you.

Read Your PMI Disclosure
It may have answers.

For every loan made after July 29, 1999, loan providers must provide homebuyers a PMI disclosure statement, including the following:

1 � Written initial amortization schedule (timetable for paying off your loan)

2 � Written notice of the date on which the homeowner may request cancellation, based on a standard amortization (paydown) schedule for the loan

3 � For fixed-rate loans, a written notice that you can request early cancellation based on making accelerated payments (adjustable rate mortgage servicers must notify homeowners when the cancellation is reached)

4 � That there are circumstances that might prevent cancellation or termination which must be spelled out

5 � For high-risk loans, notice that PMI will not be required beyond the midpoint of the amortization period

6 � Annual statement of your rights as a homeowner under the new law (PL 105-216), and an address and telephone number you may use to contact the loan servicer to determine the status of your PMI

Talk to Your Lender

Now that you've read the Act and know your rights, learn how to read the Riot Act to your lender and cancel your PMI.

Cancel PMI Under the New Law
How do you spell RELIEF?

For Those Who Qualify
What the law allows.

For loan transactions that were completed July 29, 1999 or later, the law provides two situations in which borrower-paid PMI may be cancelled.

• Automatic Relief � 22 Percent Equity
  
  Generally speaking, when your home equity position reaches 22 percent of the original value of the property, the mortgage servicer must automatically cancel your PMI. What's original value? It's the original sale price, or the appraised value at the time of the original transaction, whatever's lower. You must be current in making payments for automatic cancellation to apply. Different requirements exist for "high risk" mortgage loans, as defined by government-sponsored entities (i.e. Fannie Mae and Freddie Mac).
  
  
• Relief By Request � 20 Percent Equity
  
  Homeowners also can request cancellation of PMI once they have paid off 20 percent of the original value of the property, if they meet certain criteria. Here's how. Make a request to cancel your PMI in writing to the loan servicer. You must have a good payment history on the mortgage. In addition, you need to provide evidence to the servicer that the property has not declined below the original value. You also must demonstrate that there are no liens against the property.

What's a Good Payment History?

To a lender, that is. Make your loan payments ON TIME, especially during the first 24 months of your loan repayment schedule. A good payment history means not making a payment 60 or more days past due. During the second 12-month period, the homeowner must not make a payment 30 days or more past due.

That's how to spell RELIEF!
At some point, anyway.

It might take a while to reach 20 or 22 percent equity but it's never too soon to start marking your calendar for canceling PMI!

Even if you ARE covered by the new law...read on! You need to know how to request cancellation of PMI.

Cancelling PMI...
For Loans Originated BEFORE July, 29, 1999

The Fannie Formula for Canceling PMI... It's NOT by the seat of your pants!

Fannie and Freddie Call the Shots.

Fannie Mae (FNMA) and Freddie Mac (FHLMC) guidelines control the majority of conventional mortgage loans and these include loans made prior to July 29, 1999. Under Fannie Mae and Freddie Mac guidelines, the loan servicer MUST cancel PMI if the homeowner requests it, and the balance of the loan has been paid down to 80% or less of the original value of the property.

So, how do you find out if you're ready to cancel? And then how do you do it?

Crunch the Numbers and Get to 80%

Here's a step-by-step approach.

• Step 1 � Figure out how much you've paid off
  
  In other words, how much of the original sale price have you paid off (not factoring in appreciation since you bought the home)? You'll need to know your home's purchase price, the amount you put down, the loan amount and the interest rate. Your annual escrow statement should provide the total principal you've paid over the years. Add that figure to the down payment.
  
  Crunch the Numbers: Sale price minus mortgage balance = equity. Equity divided by sale price = percentage of equity. If the resulting amount equals 20 percent or more of the original sales price, then congratulations, go to step 4.
  
  Still not at 80 percent? Keep Crunching!
  
  
  
• Step 2 � Factor in Appreciation
  
  You're sitting on more equity than you think! Figure out the increase in your home's value from changes in the real estate market or home improvements you've made. Single family home prices have gone up an average of about 5 percent per year, so chances are your home has increased in value since you bought it. That's going to raise your equity and put you closer to the 80 percent pay-off mark for canceling PMI. Don't forget to calculate remodeling, additions, decks and other improvements you've made since buying your home.
  
  Talk About It
  Get the real market value.
  
  Talk to a real estate agent, read local real estate ads, and check the world wide web to find out what homes have been selling for in your neighborhood. Another barometer is your local property tax assessment. Has it been going up? Just remember that the assessed value, as a dollar figure, probably doesn't reflect your home's actual market value accurately. Hopefully, your home's worth even more.
  
  Hire an Appraiser
  
  You may find more value than exists on paper. The most accurate (and expensive: $300) way to find out what your home is really worth is to hire a professional real estate appraiser to appraise your home.
  
  
  Crunch the Numbers
  One more time!
  
  Estimated value minus mortgage balance = equity. Equity divided by estimated value = percentage of equity. If the resulting amount equals 20 or more, you made it! Go to step 4.
  
  Still not at 80 percent? Keep Crunching!
  
  
  
• Step 3 � Pay down your principal
  
  If you're reasonably close, consider paying a little extra on your monthly payments to put you over the top. Tell your lender you want the extra payment applied to the loan principal.
  
  CONGRATS! You've made it to 80 Percent! Move on to Step 4!
  
  
  
• Step 4 � Contact your lender's customer service department
  
  It's PAYBACK TIME! You've crunched the numbers and know where you stand. It's time to request cancellation of your PMI.
  
  Ask them to provide the amount the property will have to be valued at to qualify to have the PMI dropped. Then write a letter requesting cancellation of your PMI. BEFORE you write your qualified written request, remember that lenders can escape the cancellation if you've been late making your payments, depending on how much and how often you've been late. In addition, FHA and VA loans do not qualify for PMI cancellation--PMI is required for the life of these loans.

Formal Requests

Here's how to write your letter requesting cancellation of your PMI.

REMEMBER:

List a daytime telephone number in case a customer service representative wishes to contact you.

Other Hints
They can make a difference...

Attach copies of any supporting information, including printouts of comparable homes that have sold in your neighborhood, or a current property appraisal, if done within the last 6 months. Describe any conversations with customer service regarding the issue and to whom you spoke to obtain the necessary paydown figure. This letter should not be included with your mortgage payment, but should be sent separately to the customer service address.

Get to the Magic Number

And cancel that PMI! It will save you. Now let�s look at some pitfalls to avoid...

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