The CFPB recently issued Compliance Bulletin 2015-03, addressing the cancellation and termination requirements for private mortgage insurance (PMI) under the Homeowners Protection Act of 1998 (HPA). We note that this Bulletin does not provide much in the way of novel interpretation or expected best practices. Instead, the Bulletin outlines the basics of these requirements, and cites examples of servicing practices that have misapplied or confused the plain language of the HPA. The Bulletin covers the following topics: (1) borrower-requested cancellation of PMI; (2) automatic termination of PMI; (3) final, mid-amortization termination of PMI; (4) PMI refunds; (5) annual PMI disclosures; and (6) investor guidelines.
On the topic of borrower-requested cancellation, the Bulletin emphasizes that the 80% loan-to-value (LTV) threshold must be based on the original value of the property. Thus, while a valuation may be required to ensure that the current property value has not declined below the original value (as a separate condition for cancellation) the LTV calculation is still based on the original value of the property. With respect to automatic termination of PMI, the Bulletin emphasizes that, unlike borrower-requested cancellation: (1) the current value of the property is not a factor, and so servicers may not require a property valuation as a condition of termination, and (2) borrowers cannot advance the termination date by making extra payments to lower the principal balance.
The Bulletin also addresses the final termination requirements under the HPA. Those provisions prohibit requiring PMI coverage, beyond the midpoint of the amortization period, provided the borrower is current. The Bulletin points out that because the HPA applies only to residential mortgage loans consummated on or after July, 29, 1999, the final termination requirements began to impact standard 30-year loans in August 2014. Accordingly, servicers are reminded to ensure that appropriate policies and procedures are in place to comply with the final termination requirements.
On the subject of PMI refunds, the Bulletin notes certain violations observed in examinations, such as improperly collecting premiums after the time frames imposed under the HPA and failing to remit unearned PMI premiums to borrowers in a timely manner. The Bulletin also notes that the CFPB observed failures to provide the annual PMI notice required under the HPA.
Finally, the Bulletin addresses the issue of investor guidelines for cancellation of PMI that are inconsistent with the requirements under the HPA. The Bulletin emphasizes that investor guidelines cannot restrict the PMI cancellation and termination rights provided under the HPA. The Bulletin notes certain examples of these issues, such as investor guidelines that base the LTV calculations on the current market value, as opposed to the original value as required by the HPA.
Overall, this Bulletin is a reminder to the industry of the plain language requirements under the HPA. It is clear that the CFPB views this as an area for which the industry seems to have lost focus, and topics addressed in the Bulletin likely will be points of emphasis for examinations.