On July 29, 1998, the
Homeowners Protection Act of 1998 (the "Act"), also known as the "PMI Cancellation Act," became effective. ("PMI" refers to private mortgage insurance.) The Act applies to residential mortgage transactions consummated on or after July 29, 1999.
The Act defines a "residential mortgage transaction" as:
"a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against a single-family dwelling that is the principal residence of the mortgagor to finance the acquisition, initial construction, or refinancing of that dwelling."
The Act governs the cancellation and termination of PMI as well as the various disclosures and notification to the borrower regarding PMI.
Private Mortgage Insurance (PMI) is additional insurance that is required on all loan transactions where the loan-to-value (LTV) ratio is 80 percent or greater. This means that if the borrower makes a down payment on a home that is less than 20 percent of the purchase price, he must purchase PMI. For example, if the purchase price is $100,000 and the down payment is less than $20,000, PMI is required. To calculate the LTV, divide the loan amount by the sales purchase price.
LTV calculation: ____loan amount _____ e.g. _$90,000_ = 0.9 = 90% LTV
sales price (purchase) $100,000
Lenders require PMI because it protects them against any default on the loan by the borrower. The benefit to the borrower of paying PMI is that the borrower may purchase a home with a smaller down payment.
If you have any questions on how to enter a monthly PMI, please contact DSI's Customer Service Department at (800) 649-1362.
DSI's Compliance Department invites you to review our other articles on canceling PMI and entering PMI/MMI information in DocMagic:
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