Homeowner’s Protection Act: Responsibilities on PMI

Enacted in 1998, the Homeowner’s Protection Act (HPA) ensures borrowers do not pay private mortgage insurance (PMI) premiums longer than necessary by requiring lenders/servicers to cancel or terminate coverage when certain loan-to-value (LTV) thresholds are reached. By the way, did you know that under H.R.1/the One Big Beautiful Bill, premiums for PMI are again tax deductible. As background, the deduction for mortgage insurance premiums was phased out after 2021 under prior tax law, but under H.R.1, the deduction is reinstated for tax year 2026 and beyond. This means that eligible borrowers who itemize deductions can deduct PMI premiums on their taxes, helping lower the overall cost of PMI.

Given the return of the PMI tax deduction going forward, it seems like an appropriate time to revisit the HPA’s notice requirements (12 U.S.C. §§ 4902-4904). This blog provides a simplified, general overview of the notice obligations under the HPA related to PMI for residential first mortgages, from consummation through termination or cancellation.

Initial Disclosures. At loan closing, lenders are required to provide an initial disclosure informing borrowers of their rights under the HPA. This includes the right to request PMI cancellation once the LTV ratio reaches 80%, as well as the point in which PMI will automatically terminate at 78% LTV. The disclosure must include the projected dates for these events, based on the loan’s amortization schedule. Additionally, it must outline any conditions the borrower must meet, such as maintaining a history of on-time payments.

Annual Notice. In addition to the initial disclosure requirements, lenders must also provide annual notices for the duration that PMI is associated with a loan. The purpose of this notice is to keep borrowers informed of their right to cancel PMI as they build equity in their home. Each annual notice explains how borrowers can request cancellation, outlines the conditions that must be met, and provides the lender or servicer’s contact information.

Cancellation Notice. The HPA includes specific notice requirements for PMI cancellation. Borrowers must submit a written request to cancel PMI once their loan reaches 80% LTV (or any date after that point). Lenders/servicers are required to respond in writing, indicating whether the request is approved or denied. If approved, PMI must be cancelled as of the 80% LTV date. If denied, the lender/servicer must provide a written notice within 30 days explaining the reason for the denial. As stated above, borrowers can ask to cancel PMI once their loan balance reaches 80% of the home’s original value. Lenders must ensure PMI is removed as required by the HPA and not kept longer than allowed. PMI will automatically end when the loan balance is scheduled to reach 78% of the home’s original value, as shown in the original amortization schedule, as long as the loan is current at that time. This date is set at closing and assumes all payments are made on time. If the borrower, however, is not current when the loan reaches the scheduled 78% point, PMI will not end then. Instead, PMI will terminate after the loan is brought current, effective the first day of the following month.

Lenders/servicers must track loan balances and payment status and apply the applicable cancellation or termination trigger to ensure timely removal of PMI in accordance with the requirements of the HPA.

PMI Cancellation / Termination Confirmation Notice. After PMI is cancelled or terminated, the lender/servicer must send a written confirmation within 30 days. Any PMI payments made for periods after the effective date of cancellation or termination must be refunded within 45 days.

As a final takeaway, while this overview is simplified, I hope it provides insight into the general notice obligations under the HPA and highlights that, regardless of whether a loan is serviced in-house or by an outside servicer, the credit union remains ultimately responsible for ensuring compliance across the lifecycle of PMI.

As a reminder, the HPA checklist from NCUA’s Federal Consumer Financial Protection Guide and CFPBs examination procedures on the HPA are useful resources to help you understand and work through these requirements.