GETTING RID OF Private Mortgage InsuranceThanks to the perseverance of a U.S. congressman, the enactment of the Homeowners Protection Act addresses a long overlooked issue: private mortgage insurance (PMI). Created with the consumer in mind, this law allows homeowners who meet specific critera to eliminate PMI fees from their monthly mortgage payments. Private mortgage insurance, euphemistically labeled by the banking industry as “credit enhancement,” exists to protect the lender in the event of default on the part of the borrower, and is generally required of the homebuyer whose downpayment totals less than twenty percent. With many consumers unaware of their right to terminate PMI, the legislation requires lenders to (a) advise buyers up front of the PMI premium figured into their monthly payments, (b) list PMI as a separate line item in the escrow account, (c) provide annual disclosures relative to the homeowner’s right to cancel, contingent upon satisfying the necessary requirements, along with instructions on how to do so, and (d) effect automatic termination on current loans, once the borrower’s equity reaches twenty-two percent of the original appraised value. As with all matters legal, there are loopholes. For instance, despite most creditors’ leniency, the Act technically pertains only to loans granted after 7/29/99. Additionally, while some lenders try to reduce monthly payments by paying for the insurance themselves, they pass on the cost in the form of higher interest rates. Pitfalls aside, however, the Homeowners Protection Act can result in substantial savings. So, if you’re refinancing or reaching the seventy-eight percent PMI cutoff point, become informed and be proactive by putting this legislation to work for you. AMERICAN HERITAGE REALTY
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