Private Mortgage Insurance

ONE OF THE HOTTEST CONSUMER ISSUES of the late 1990s has been the overpayment of private mortgage insurance by thousands of unsuspecting homeowners. After a series of class action lawsuits, much controversy and debate, Congress passed the Homeowners Protection Act of 1998 which took effect July 29, 1999. Eight states, including California, now have PMI disclosure and cancellation statutes as well.

The new federal law provides for the automatic cancellation of PMI for loans originated after July 29, 1999. It also requires loan service’s to send annual disclosures to all mortgage borrowers about PMI and how to initiate early cancellation.

What is Private Mortgage Insurance?

Private mortgage insurance is a type of insurance which protects the lender in the event the borrower defaults on the loan. Most lenders require borrowers to pay PMI premiums whenever they make a down payment of less than 20 percent of the purchase price. Those fortunate enough to have a mortgage with a loan-to-value ratio (LTV) of 80 percent or less pay lower interest rates, less closing costs and don’t have to pay PMI premiums.