Homeowners Protection Act
Overview of Mortgage Insurance Cancellation
The federal Homeowners Protection Act of 1998* (HPA) was designed to benefit homebuyers who are required to pay for private mortgage insurance under the terms of certain loans made for single-family, primary residences on or after July 29, 1999.
The following information outlines the basic requirements of the HPA for mortgage guaranty insurance providers, such as Arch Mortgage Insurance Company, but does not constitute legal advice. For detailed information on the requirements of the HPA, you should consult your own legal counsel. Some states have their own homeowner protection laws that replace or add to the federal requirements. In addition, the terms of lender loan agreements vary. Thus, how the HPA applies to an individual loan will depend on the specifics of that loan.
It is important for borrowers to understand that Arch MI insures the lender and, therefore, we cannot cancel the mortgage insurance coverage for a loan upon borrower request. The borrower must contact his or her lender regarding this process.
MI Cancellation – CU
MI Cancellation Under The HPA and Refundable vs. Non-Refundable Premium.
BPMI Cancellation Matrix – CU
Member-Paid Cancellation: Summary of Fannie Mae and Freddie Mac Guidelines
CFPB Bulletin 2015-03
Compliance Bulletin: Private Mortgage Insurance Cancellation and Termination.
HPA Requirements for Mortgage Insurers
- Arch MI’s obligations under the HPA begin when the lender or designated servicer contacts the insurer to cancel borrower-paid mortgage insurance on a certain loan.
- Once a loan meets all HPA requirements, the lender can no longer require the borrower to pay for mortgage insurance premiums. The lender or designated servicer is responsible for verifying HPA qualifications and instructing Arch MI to cancel coverage.
In general, the HPA requires that the borrower can no longer be required to pay for mortgage insurance premiums in the following circumstances:
- Borrower-requested Cancellation at 80% Loan-to-Value (LTV) – When the principal balance of the loan reaches 80% of the original value of the property (whether under the loan’s amortization schedule or before then due to additional payments), the borrower can request in writing that the lender or designated servicer cancel the premium payment obligation. The borrower must have a Good Payment History, as defined in the HPA, and may be required to show that the current value of the home has not declined below the original value and certify that the borrower’s equity in the property is not subject to a subordinate lien.
- Lender- or Designated Servicer-initiated “Automatic Termination” at 78% LTV – Once the LTV, based on the property’s original value and the loan’s amortization schedule, reaches 78%, the lender or designated servicer can no longer require the borrower to pay the mortgage insurance premium and must initiate coverage cancellation.
- Other Loans and Requirements – For all types of loans, the borrower must be current on all mortgage payments at the time the premium payment requirement is to end under the HPA. Separate HPA requirements apply to loans designated as High Risk at loan origination and for loans that reach the midpoint of the amortization schedule without otherwise qualifying to end borrower premium payments. [Note: The lender or designated servicer can voluntarily choose to end the premium payment obligation outside of the HPA at any time based on lender or investor guidelines.]
- Loan Modifications – The HPA-based premium payment termination date will be recalculated following a loan modification to reflect the new terms and conditions of the loan.
- Arch MI has 30 days from receiving the notice of cancellation from the lender to return all collected but unearned premium to the lender. The lender or designated servicer has 45 days from the HPA-required date for termination of borrower premium payments to return unearned premium to the borrower, if any.
The above HPA requirements do not apply to FHA and VA government guaranteed loans, or to lender-paid mortgage insurance. For loans with mortgage insurance, lenders and designated servicers are subject to a series of borrower notice requirements under the HPA, beginning at the time of loan origination. Please refer to the specific text of the HPA to determine which requirements apply.
For more information, please visit the Websites of the Department of Housing and Urban Development or Fannie Mae.
* 12 USC 4901, et. seq.