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.
Homeowners protection Act
applies only to single-family, 1-unit primary
applies only to single-family, 1-unit primary
Borrower-Requested BPMI Cancellation Based on
Original Value*
Borrower can request when loan balance is
80% of original property value (provided borrower has a good payment history, is
current on the loan and satisfies the lender’s requirements to demonstrate that there are no
subordinate liens on the property and the property value has not declined below its original
value).
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.
BORROWER-REQUESTED BPMI CANCELLATION BASED ON ORIGINAL VALUE* |
||
|---|---|---|
1-Unit Primary or Second Home |
2-4 Unit Primary or 1-4 Unit Investment Property |
|
| Fannie Mae | Borrower can request when loan balance is 80% of original property value. | Borrower can request when loan balance is 70% of original property value. |
| Freddie Mac | Borrower can request when loan balance is 65% of original property value. | |
| Borrower requests can be either verbally or in writing.
Guidance on validating that property value has not declined and borrower payment history requirements can be found in Freddie Mac Servicing Guide Sections 8203.1 through 8203.7 and 9205.11 and Fannie Mae Servicing Guide Section B-8.1-04. For borrower-requested BPMI cancellation based on Original Value, there is no minimum seasoning requirement and the borrower may request BPMI cancellation after making a pre-payment and the reduced LTV now meets the minimum noted above. |
||
Loan Amortization Illustration
| INITIAL LTV NOTE RATE: | LTV AT YEAR END | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 85% | 90% | 95% | 97% | |||||||||
| Year | 6.0% | 7.0% | 8.0% | 6.0% | 7.0% | 8.0% | 6.0% | 7.0% | 8.0% | 6.0% | 7.0% | 8.0% |
| 1 | 84.0% | 84.2% | 84.3% | 88.9% | 89.1% | 89.3% | 93.8% | 94.1% | 94.2% | 95.8% | 96.1% | 96.2% |
| 2 | 82.8% | 83.3% | 83.6% | 87.7% | 88.2% | 88.5% | 92.6% | 93.0% | 93.4% | 94.5% | 95.0% | 95.4% |
| 3 | 81.7% | 82.3% | 82.7% | 86.5% | 87.1% | 87.6% | 91.3% | 91.9% | 92.5% | 93.2% | 93.9% | 94.4% |
| 4 | 80.4% | 81.2% | 81.8% | 85.2% | 86.0% | 86.6% | 89.9% | 90.7% | 91.5% | 91.8% | 92.7% | 93.4% |
| 5 | 79.1% | 80.1% | 80.9% | 83.7% | 84.8% | 85.6% | 88.4% | 89.5% | 90.4% | 90.3% | 91.4% | 92.3% |
| 6 | 77.7% | 78.8% | 79.8% | 82.3% | 83.5% | 84.5% | 86.8% | 88.1% | 89.2% | 88.7% | 89.9% | 91.1% |
| 7 | 77.5% | 78.7% | 80.7% | 82.1% | 83.3% | 85.2% | 86.6% | 87.9% | 87.0% | 88.5% | 89.7% | |
| 8 | 77.4% | 79.0% | 80.6% | 82.0% | 83.4% | 85.1% | 86.5% | 85.1% | 86.9% | 88.3% | ||
| 9 | 77.2% | 79.0% | 80.5% | 81.5% | 83.4% | 85.0% | 83.2% | 85.1% | 86.8% | |||
| 10 | 77.3% | 79.0% | 79.5% | 81.6% | 83.4% | 81.2% | 83.3% | 85.1% | ||||
| 11 | 77.3% | 77.4% | 79.6% | 81.6% | 79.0% | 81.3% | 83.3% | |||||
| 12 | 77.5% | 79.7% | 76.7% | 79.2% | 81.4% | |||||||
| 13 | 77.6% | 76.9% | 79.3% | |||||||||
| 14 | 77.0% | |||||||||||
Year in which MI will be auto cancelled based on Original Value
Year in which cancellation can be requested by borrower based on
Original Value
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.