Removing Mortgage Insurance

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 thatís 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 canít 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

 

 

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