House Approves Plan to Limit Private Mortgage Insurance
The House approved a bill Tuesday to automatically cancel private mortgage insurance when it is no longer needed, a move that could save many homeowners hundreds of dollars a year.
The bill, passed by voice vote, provides for the cancellation of private mortgage insurance when a homeowner has 22% equity in his or her home. A homeowner with a good payment record whose home has not depreciated below the purchase price can ask that the insurance be canceled upon reaching 20% of equity.
Private mortgage insurance is required by lenders for borrowers who make down payments of less than 20% of the home price. The purpose is to protect the lender from losses if the borrower defaults on a low-down-payment loan.
But consumers have complained that many lenders continue to charge private mortgage insurance premiums after homeowners have enough equity to nullify most or all risk of default.
The average cost of the insurance is between $300 and $900 a year, the House Banking Committee estimates.
Currently, no federal law makes lenders tell borrowers of their right to cancel the insurance. The bill requires lenders to disclose information at the time of settlement and inform consumers of their right to terminate.
The legislation was praised by both the Consumers Union, which called it a “good deed for consumers,” and the Mortgage Insurance Cos. of America, which said it “assures consumers that they can take advantage of the benefits of mortgage insurance in buying a home knowing that lenders will cancel it when it is no longer needed.”
The bill now returns to the Senate, which has approved a slightly different version.