Cancelling Borrower-Paid Mortgage Insurance
Under the Homeowners Protection Act
The Homeowners Protection Act (HPA) of 1998 established rules for both automatic termination and borrower cancellation of borrower-paid private mortgage insurance (BPMI) on certain home mortgages. The HPA requires that BPMI be cancelled when a borrower has built up a certain amount of equity in their home. The act covers privately insured first mortgages on single-family primary residences, whose sales were closed on or after July 29, 1999. There are provisions for both borrower-requested cancellation and lender-required automatic termination.
Under Fannie Mae® and Freddie Mac®
Fannie Mae and Freddie Mac each have additional guidelines for both borrower-requested cancellation and automatic termination of BPMI that apply to loans owned or guaranteed by them, which closed on or after July 29, 1999. In addition to the requirements shown below, each GSE requires the borrower to demonstrate that they are current on the mortgage payments.
* Servicer must obtain a new appraisal that is based on an inspection of both the interior and exterior of the property. Servicer warrants that it has reviewed the appraisal and is satisfied that the option of value is both reasonable and adequately supported by market data. ** Fannie Mae can waive its two-year mortgage seasoning requirement in the case of a borrower (who is the original borrower) who has made improvements to the property.
This content is intended to provide an informational overview of BPMI cancellation and does not constitute legal advice. The HPA contains numerous additional provisions that we do not address herein. To assure compliance with any obligations your organization may have under the HPA, you should review the HPA itself along with your independent legal counsel. Individual states may also have mortgage insurance cancellation laws that may apply. Fannie Mae and Freddie Mac requirements were taken from the most recent versions of their Seller/Servicer Guides and are subject to change. See those Guides for the most up-to-date mortgage insurance cancellation information.