12 U.S.C. § 4902

Current through P.L. 118-106 (published on www.congress.gov on 10/04/2024)

Section 4902 - Termination of private mortgage insurance

(a) Borrower cancellation

A requirement for private mortgage insurance in connection with a residential mortgage transaction shall be canceled on the cancellation date or any later date that the mortgagor fulfills all of the requirements under paragraphs (1) through (4), if the mortgagor-

(1) submits a request in writing to the servicer that cancellation be initiated;

(2) has a good payment history with respect to the residential mortgage;

(3) is current on the payments required by the terms of the residential mortgage transaction; and

(4) has satisfied any requirement of the holder of the mortgage (as of the date of a request under paragraph (1)) for-

(A) evidence (of a type established in advance and made known to the mortgagor by the servicer promptly upon receipt of a request under paragraph (1)) that the value of the property securing the mortgage has not declined below the original value of the property; and

(B) certification that the equity of the mortgagor in the residence securing the mortgage is unencumbered by a subordinate lien.

(b) Automatic termination

A requirement for private mortgage insurance in connection with a residential mortgage transaction shall terminate with respect to payments for that mortgage insurance made by the mortgagor-

(1) on the termination date if, on that date, the mortgagor is current on the payments required by the terms of the residential mortgage transaction; or

(2) if the mortgagor is not current on the termination date, on the first day of the first month beginning after the date that the mortgagor becomes current on the payments required by the terms of the residential mortgage transaction.

(c) Final termination

If a requirement for private mortgage insurance is not otherwise canceled or terminated in accordance with subsection (a) or (b), in no case may such a requirement be imposed on residential mortgage transactions beyond the first day of the month immediately following the date that is the midpoint of the amortization period of the loan if the mortgagor is current on the payments required by the terms of the mortgage.

(d) Treatment of loan modifications

If a mortgagor and mortgagee (or holder of the mortgage) agree to a modification of the terms or conditions of a loan pursuant to a residential mortgage transaction, the cancellation date, termination date, or final termination shall be recalculated to reflect the modified terms and conditions of such loan.

(e) No further payments

No payments or premiums may be required from the mortgagor in connection with a private mortgage insurance requirement terminated or canceled under this section-

(1) in the case of cancellation under subsection (a), more than 30 days after the later of-

(A) the date on which a request under subsection (a)(1) is received; or

(B) the date on which the mortgagor satisfies any evidence and certification requirements under subsection (a)(4);

(2) in the case of termination under subsection (b), more than 30 days after the termination date or the date referred to in subsection (b)(2), as applicable; and

(3) in the case of termination under subsection (c), more than 30 days after the final termination date established under that subsection.

(f) Return of unearned premiums

(1) In general

Not later than 45 days after the termination or cancellation of a private mortgage insurance requirement under this section, all unearned premiums for private mortgage insurance shall be returned to the mortgagor by the servicer.

(2) Transfer of funds to servicer

Not later than 30 days after notification by the servicer of termination or cancellation of private mortgage insurance under this chapter with respect to a mortgagor, a mortgage insurer that is in possession of any unearned premiums of that mortgagor shall transfer to the servicer of the subject mortgage an amount equal to the amount of the unearned premiums for repayment in accordance with paragraph (1).

(g) Exceptions for high risk loans

(1) In general

The termination and cancellation provisions in subsections (a) and (b) do not apply to any residential mortgage transaction that, at the time at which the residential mortgage transaction is consummated, has high risks associated with the extension of the loan-

(A) as determined in accordance with guidelines published by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, in the case of a mortgage loan with an original principal balance that does not exceed the applicable annual conforming loan limit for the secondary market established pursuant to section 1454(a)(2) of this title, so as to require the imposition or continuation of a private mortgage insurance requirement beyond the terms specified in subsection (a) or (b) of this section; or

(B) as determined by the mortgagee in the case of any other mortgage, except that termination shall occur-

(i) with respect to a fixed rate mortgage, on the date on which the principal balance of the mortgage, based solely on the initial amortization schedule for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 77 percent of the original value of the property securing the loan; and

(ii) with respect to an adjustable rate mortgage, on the date on which the principal balance of the mortgage, based solely on the amortization schedule then in effect for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 77 percent of the original value of the property securing the loan.

(2) Termination at midpoint

A private mortgage insurance requirement in connection with a residential mortgage transaction described in paragraph (1) shall terminate in accordance with subsection (c).

(3) Rule of construction

Nothing in this subsection may be construed to require a residential mortgage or residential mortgage transaction described in paragraph (1)(A) to be purchased by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

(4) GAO report

Not later than 2 years after July 29, 1998, the Comptroller General of the United States shall submit to the Congress a report describing the volume and characteristics of residential mortgages and residential mortgage transactions that, pursuant to paragraph (1) of this subsection, are exempt from the application of subsections (a) and (b). The report shall-

(A) determine the number or volume of such mortgages and transactions compared to residential mortgages and residential mortgage transactions that are not classified as high-risk for purposes of paragraph (1); and

(B) identify the characteristics of such mortgages and transactions that result in their classification (for purposes of paragraph (1)) as having high risks associated with the extension of the loan and describe such characteristics, including-

(i) the income levels and races of the mortgagors involved;

(ii) the amount of the downpayments involved and the downpayments expressed as percentages of the acquisition costs of the properties involved;

(iii) the types and locations of the properties involved;

(iv) the mortgage principal amounts; and

(v) any other characteristics of such mortgages and transactions that may contribute to their classification as high risk for purposes of paragraph (1), including whether such mortgages are purchase-money mortgages or refinancings and whether and to what extent such loans are low-documentation loans.

(h) Accrued obligation for premium payments

The cancellation or termination under this section of the private mortgage insurance of a mortgagor shall not affect the rights of any mortgagee, servicer, or mortgage insurer to enforce any obligation of such mortgagor for premium payments accrued prior to the date on which such cancellation or termination occurred.

12 U.S.C. § 4902

Pub. L. 105-216, §3, July 29, 1998, 112 Stat. 899; Pub. L. 106-569, title IV, §§402(a)(2), (c) (1), 403(a), 404, 405(b), (c), Dec. 27, 2000, 114 Stat. 2956-2958.

EDITORIAL NOTES

AMENDMENTS2000-Subsec. (a). Pub. L. 106-569, §404(1)(A), inserted "or any later date that the mortgagor fulfills all of the requirements under paragraphs (1) through (4)" after "cancellation date" in introductory provisions.Subsec. (a)(3), (4). Pub. L. 106-569, §404(1)(B)-(D), added par. (3) and redesignated former par. (3) as (4).Subsec. (b)(2). Pub. L. 106-569, §405(b), amended par. (2) generally. Prior to amendment, par. (2) read as follows: "on the date after the termination date on which the mortgagor becomes current on the payments required by the terms of the residential mortgage transaction."Subsec. (c). Pub. L. 106-569, §403(a)(1), inserted "on residential mortgage transactions" after "requirement be imposed".Subsec. (d). Pub. L. 106-569, §402(c)(1)(B), added subsec. (d). Former subsec. (d) redesignated (e).Subsec. (e). Pub. L. 106-569, §402(c)(1)(A), redesignated subsec. (d) as (e). Former subsec. (e) redesignated (f).Subsec. (e)(1)(B). Pub. L. 106-569, §404(2), substituted "subsection (a)(4)" for "subsection (a)(3)".Subsec. (f). Pub. L. 106-569, §402(c)(1)(A), redesignated subsec. (e) as (f). Former subsec. (f) redesignated (g). Subsec. (f)(1)(B)(ii). Pub. L. 106-569, §402(a)(2), substituted "the amortization schedule then in effect" for "amortization schedules". Subsec. (g). Pub. L. 106-569, §402(c)(1)(A), redesignated subsec. (f) as (g).Subsec. (g)(1). Pub. L. 106-569, §403(a)(2)(A), struck out "mortgage or" after "do not apply to any residential" in introductory provisions.Subsec. (g)(2). Pub. L. 106-569, §403(a)(2)(B), struck out "mortgage or" after "in connection with a residential".Subsec. (g)(3). Pub. L. 106-569, §403(a)(2)(C), substituted "residential mortgage or residential" for "mortgage or". Subsec. (h). Pub. L. 106-569, §405(c), added subsec. (h).

STATUTORY NOTES AND RELATED SUBSIDIARIES

EFFECTIVE DATESection effective 1 year after July 29, 1998, see section 13 of Pub. L. 105-216 set out as a note under section 4901 of this title.

adjustable rate mortgage: The term "adjustable rate mortgage" means a residential mortgage that has an interest rate that is subject to change. A residential mortgage that: (A) does not fully amortize over the term of the obligation; and (B) contains a conditional right to refinance or modify the unamortized principal at the maturity date of the term, shall be considered to be an adjustable rate mortgage for purposes of this chapter.
amortization schedule then in effect: The term "amortization schedule then in effect" means, with respect to an adjustable rate mortgage, a schedule established at the time at which the residential mortgage transaction is consummated or, if such schedule has been changed or recalculated, is the most recent schedule under the terms of the note or mortgage, which shows-(A) the amount of principal and interest that is due at regular intervals to retire the principal balance and accrued interest over the remaining amortization period of the loan; and(B) the unpaid balance of the loan after each such scheduled payment is made.
cancellation date: The term "cancellation date" means-(A) with respect to a fixed rate mortgage, at the option of the mortgagor, the date on which the principal balance of the mortgage-(i) based solely on the initial amortization schedule for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 80 percent of the original value of the property securing the loan; or(ii) based solely on actual payments, reaches 80 percent of the original value of the property securing the loan; and(B) with respect to an adjustable rate mortgage, at the option of the mortgagor, the date on which the principal balance of the mortgage-(i) based solely on the amortization schedule then in effect for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 80 percent of the original value of the property securing the loan; or(ii) based solely on actual payments, first reaches 80 percent of the original value of the property securing the loan.
fixed rate mortgage: The term "fixed rate mortgage" means a residential mortgage that has an interest rate that is not subject to change.
good payment history: The term "good payment history" means, with respect to a mortgagor, that the mortgagor has not-(A) made a mortgage payment that was 60 days or longer past due during the 12-month period beginning 24 months before the later of (i) the date on which the mortgage reaches the cancellation date, or (ii) the date that the mortgagor submits a request for cancellation under section 4902(a)(1) of this title; or(B) made a mortgage payment that was 30 days or longer past due during the 12-month period preceding the later of (i) the date on which the mortgage reaches the cancellation date, or (ii) the date that the mortgagor submits a request for cancellation under section 4902(a)(1) of this title.
initial amortization schedule: The term "initial amortization schedule" means a schedule established at the time at which a residential mortgage transaction is consummated with respect to a fixed rate mortgage, showing-(A) the amount of principal and interest that is due at regular intervals to retire the principal balance and accrued interest over the amortization period of the loan; and(B) the unpaid principal balance of the loan after each scheduled payment is made.
midpoint of the amortization period: The term "midpoint of the amortization period" means, with respect to a residential mortgage transaction, the point in time that is halfway through the period that begins upon the first day of the amortization period established at the time a residential mortgage transaction is consummated and ends upon the completion of the entire period over which the mortgage is scheduled to be amortized.
mortgage insurance: The term "mortgage insurance" means insurance, including any mortgage guaranty insurance, against the nonpayment of, or default on, an individual mortgage or loan involved in a residential mortgage transaction.
mortgage insurer: The term "mortgage insurer" means a provider of private mortgage insurance, as described in this chapter, that is authorized to transact such business in the State in which the provider is transacting such business.
mortgagee: The term "mortgagee" means the holder of a residential mortgage at the time at which that mortgage transaction is consummated.
mortgagor: The term "mortgagor" means the original borrower under a residential mortgage or his or her successors or assignees.
private mortgage insurance: The term "private mortgage insurance" means mortgage insurance other than mortgage insurance made available under the National Housing Act [ 12 U.S.C. 1701 et seq.], title 38, or title V of the Housing Act of 1949 [ 42 U.S.C. 1471 et seq.].
residential mortgage transaction: The term "residential mortgage transaction" means a transaction consummated on or after the date that is 1 year after July 29, 1998, 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.
residential mortgage: The term "residential mortgage" means a mortgage, loan, or other evidence of a security interest created with respect to a single-family dwelling that is the principal residence of the mortgagor.
termination date: The term "termination date" means-(A) with respect to a fixed rate mortgage, the date on which the principal balance of the mortgage, based solely on the initial amortization schedule for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 78 percent of the original value of the property securing the loan; and(B) with respect to an adjustable rate mortgage, the date on which the principal balance of the mortgage, based solely on the amortization schedule then in effect for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 78 percent of the original value of the property securing the loan.