Homeowners Protection Act (HPA)
There are many laws to be aware of in the mortgage business, most of which
require the Loan Officer or Lender to take action. Rarely are there laws that allow
the borrower to take action and get direct benefit. That is what the Homeowners
Protection Act is for.
The Homeowners Protection Act is all about private mortgage insurance and when
it can, and when it will, be removed. It’s important to remember that PMI and the
Homeowners Protection Act do not apply to government loans like FHA, VA or USDA
loans or loans with no PMI.
For conventional loans, PMI applies when the LTV is over 80%. The Homeowners
Protection Act says that mortgage insurance cannot remain on loan for the duration.
Once a borrower’s principal balance reaches 80% of the original value the borrower
can request that the PMI be removed. Most of the time lenders will use the original
appraised value of the property, however, they can use the current value if it has
gone down or if the borrower pays for the appraisal and did improvements to justify
an increase in value. When requesting PMI removal at 80% the lender can say
no but when the LTV reaches 78% of the original value the PMI is required to be
automatically be removed.
Lenders are required to notify the borrower of the details of their PMI at closing,
when the LTV reaches 80% and if the PMI has not yet been removed, when the LTV
reaches 78%. This way the borrower doesn’t “forget” about their PMI and can have
their monthly mortgage payment reduced when their loan to value qualifies.
Remember, when you are working with your borrowers who are required to have
PMI, let them know about Homeowners Protection Act. You will be one of the few
loan officers who know the details of the law and how it can help save them money
Knowing the laws of the mortgage industry is not only required under the NMLS in
order to become a licensed Loan Officer, it also helps you provide a better service to
your clients. Mortgage professionals who know about the laws and regulations in
their industry tend to have more repeat clients and referrals. Therefore, there’s no
better time than the present to get more familiar with the laws and regulations that
affect your clients most.