Many
people get confused when it comes to removing mortgage insurance form
their home loan.
Because
mortgage insurance premiums are paid by borrowers, to protect lenders,
many lenders refuse to terminate it voluntarily. So they must be forced
to terminate it by government. And that’s where the confusion starts.
Since there are multiple government agencies setting termination rules,
it is difficult to know what to do.Take
a look at some of the parties responsible for setting termination
rules:
Fannie
Mae, a Government-sponsored program, has established the termination
rules for the mortgages it purchases from lenders.
Freddie
Mac, another Government-sponsored program, has established the
termination rules for the mortgages it purchases from lenders.
Congress
in the Homeowners Protection Act of 1998 set out ground rules for
termination of private mortgage insurance on all mortgages originated
after July 29, 1999.
Ten
states, including California and New York earlier had passed similar
legislation.
Termination rules
for mortgage insurance provided by the Federal Housing Administration
(FHA) are completely different than those applicable to private mortgage
insurance (PMI), and
are based on earlier Federal legislation and regulations of the FHA.
A
major issue in government-mandated termination rules is where responsibility
lies for initiating termination? Lenders can be made responsible if
termination is based on the current loan balance and the original
property value, because the lender has that information. But property
values change with time, and lenders can’t be made responsible for
termination based on the current property value. Such information
would be extremely costly to maintain for every borrower.
Ultimately
the borrower is responsible for initiating termination based on current
market value. They know better than the lender what their property
may be worth. So how does a borrower become aware of the rules and
procedures to follow in initiating the termination process? Government
requires lenders to disclose the rules and procedures at the time
the loan is made. So exact disclosures are included in your original
paperwork.
Contact
Allie Mae for individualized advice.
3-19-2004
