Saying that consumers should not be billed unnecessarily for private mortgage insurance (PMI) the Consumer Financial Protection Bureau has issued guidance to servicers about terminating the requirement for borrowers to maintain it and outlined procedures for cancelling policies.  The CFPB bulletin clarifies some requirements of the Homeowners Protection Act and is intended to help servicers comply with the law but does not create any new rules or requirements.

Home buyers are generally required to carry a PMI policy if they make a downpayment of less than 20 percent of the purchase price (or the appraised value, if it's lower)*.  PMI protects the lender if the borrower stops making payment and the premiums for the policy are added to the borrower's monthly mortgage payment. Prior to passage of the Homeowners Protection Act of 1998 some lenders allowed homebuyers to cancel their PMI when they reached an appropriate level of equity while others kept it in place for the life of the loan.  The Act set uniform nationwide standards for PMI cancellation and termination.

CFPB said it has identified substantial industry confusion over PMI cancellation and termination requirements in the Act and its examinations have identified violations of several of its provisions.   The bulletin, which can be read in its entirety here, clarifies the conditions that borrowers must meet, in addition to building the necessary equity, to quality for termination and sets out conditions for a borrower requested termination and one that is required to occur automatically. 

CFPB Director Richard Cordray said, "We will continue to supervise mortgage servicers to ensure they are treating borrowers fairly, and today's guidance should help servicers come into compliance with the Homeowners Protection Act." 

*PMI is not the same as FHA MI, which is required on ALL FHA loans regardless of term or down-payment.