House Passes Bill to End Some PMI

Homeowners may be able to save money under a bill approved by the House on Wednesday that would end the paying of unnecessary private mortgage insurance.

The House voted 421 to 7 to approve the bill that would require lenders to notify homeowners annually of their right to cancel after building up enough equity to secure their home loan.

As many as 250,000 homeowners nationwide are paying for mortgage insurance coverage because they either don’t know it can be canceled or can’t persuade lenders to cancel it, Rep. James V. Hansen (R-Utah), sponsor of the bill, said.

Current law doesn’t require lenders to cancel at any time, he said.

Under Hansen’s bill, homeowners would be eligible for automatic cancellation once they have reached a loan-to-value ratio of 75%, based on the original purchase price. Cancellations could occur if a homeowner can prove a 75% loan-to-value ratio based on a more recent appraisal, however.

Private mortgage insurance, commonly called PMI, protects lenders from losses should homeowners default. Lenders usually require it from homeowners making down payments of less than 20%. PMI payments can range from less than $20 to more than $100 a month, depending on the size of the mortgage.

Lawmakers praised the private mortgage industry for making it easier for people to buy homes with low down payments. But as a homeowner builds equity, the risk of default usually decreases, and the insurance becomes unnecessary at a certain point.

The industry’s lobbying group, Mortgage Insurance Cos. of America, said the bill has “serious flaws,” contending that the legislation would impose unnecessary regulation and could escalate the cost of getting a home loan with a low down payment.

Sen. Alfonse D’Amato (R-N.Y.), chairman of the Senate Banking Committee, has introduced a similar bill in the Senate.