House Clarifies PMI Cancellation
On December 5, 2000, the House of Representatives passed legislation to clarify a 1998 law making it easier for homeowners to cancel private mortgage insurance, saving thousands of dollars on mortgage payments. The American Homeownership and Economic Opportunity Act of 2000 is a wide-ranging housing and banking bill that incorporates several important housing initiatives and eases regulatory burdens for financial institutions. This bill will eliminate confusion that has resulted since the Homeowners Protection Act was passed in 1998 and will ensure that homeowners are able to cancel PMI as Congress intended.
PMI, which ranges from $20 to $100 a month on top of the normal mortgage payment, protects lenders against borrowers who default on their loans. It is usually required when homebuyers make a down payment of less than 20 percent. The insurance can be canceled when equity in the property rises above 20%. Many buyers are unaware of that fact and continue paying the insurance premiums throughout the life of the mortgage.
The 1998 legislation required lenders to automatically cancel PMI when it was no longer required. The lender has to give borrowers detailed information on the terms and conditions of their PMI and their right to cancel the coverage. Some lenders have been uncertain about the technical definitions and requirements of the 1998 law, particularly requirements concerning adjustable rate mortgages, balloon mortgages and loans whose terms or rates are changed during the life of the loan. The 2000 bill clarifies technical details of the original legislation and makes the PMI notice obligations unambiguous.
The bill, passed on December 5, 2000, will also remove restrictions on the number and term of a national bank�s board of directors, and permit expedited processing of corporate reorganizations, along with several other important technical changes in banking law.
In addition, new legislation features a number of housing initiatives, including a section on manufactured housing safety and availability. Similar legislation passed the House October 24th. The current version of the bill was modified to permit agreement with the Senate and ensure passage this year.