HPA – With regard to PMI cancellation and termination for non-high risk residential mortgage transactions, what is automatic cancellation?

Compliance > Homeowners Protection Act
Q:  With regard to PMI cancellation and termination for non-high risk residential mortgage transactions, what is automatic cancellation? 
 
A:    The Act requires a servicer to automatically terminate PMI for residential mortgage transactions on the date that:
  • the principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the secured prop­erty (based solely on the initial amortization schedule in the case of a fixed rate loan or on the amortization sched­ule then in effect in the case of an adjustable rate loan, ir­respective of the outstanding balance), if the borrower is current; or
  • if the borrower is not current on that date, on the first day of the first month following the date that the borrower be­comes current (12 USC §4902(b)).
 
If PMI is terminated, the servicer may not require further payments or premiums of PMI more than 30 days after the termination date or the date following the termination date on which the borrower becomes current on the payments, whichever is sooner (12 USC §4902(e)(2)).  
 
There is no provision in the automatic termination section of the Act, as there is with the borrower-requested PMI cancella­tion section, that protects the lender against declines in proper­ty value or subordinate liens. The automatic termination provi­sions make no reference to good payment history (as pre­scribed in the borrower-requested provisions), but state only that the borrower must be current on mortgage payments (12 USC §4902(b)).
 
 
This Q&A was based on information contained in the FDIC’s Compliance Examination Manual for Homeowner’s Protection Act – September 2015, which may be found here:  https://www.fdic.gov/regulations/compliance/manual/5/v-5.1.pdf
 

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