House Clarifies PMI Cancellation, Eases Regulatory Burden for Banks

December 5, 2000

The House today passed legislation that will clarify a 1998 law making it easier for homeowners to cancel private mortgage insurance, saving thousands of dollars on mortgage payments. The PMI legislation is part of the American Homeownership and Economic Opportunity Act of 2000, a wide-ranging housing and banking bill that incorporates several important housing initiatives and also eases regulatory burdens for financial institutions.

"This bill will eliminate the confusion that has resulted since the Homeowners Protection Act was passed in 1998," said House Financial Institutions Subcommittee Chairman Marge Roukema, R-N.J.-5th, who sponsored the PMI provisions. "It will ensure that homeowners are able to cancel PMI as Congress intended. PMI costs thousands of homeowners millions of dollars every year because they continue paying it long after they could have dropped it."

PMI, which ranges from $20 to $100 a month, protects lenders against borrowers who default on their loans and is usually required when home buyers make a down payment of less than 20 percent. The insurance can be canceled when equity rises above 20 percent, but many buyers are unaware of that fact and continue paying the insurance premiums throughout the life of their mortgage.

The Homeowner Protection Act of 1998 required lenders to automatically cancel PMI when it is no longer required and to give borrowers detailed information on the terms and conditions of their PMI and their right to cancel the coverage. Some lenders have been uncertain about the technical definitions and requirements of the 1998 law, however, particularly concerning adjustable rate mortgages, balloon mortgages and loans whose terms or rates are changed during the life of the loan. Today's bill clarifies technical details of the original legislation and makes the PMI law "unambiguous," Roukema said.

The bill passed today also included provisions of Roukema?s Depository Institution Regulatory Streamlining Act. The legislation will remove restrictions on the number and term of a national bank?s board of directors, and permit expedited processing of corporate reorganizations, along with several other important technical changes in banking law.

"Congress has a responsibility and duty to ensure that all federal laws and regulations and the supervisory system promote the safety and soundness of the banking system," Roukema said. "But unnecessary regulatory burdens by their very nature undermine the ability of banks to operate efficiently and effectively."

In addition to Roukema?s provisions, the American Homeownership and Economic Opportunity Act of 2000 features a number of housing initiatives, including a section on manufactured housing safety and availability strongly supported by Roukema. Similar legislation passed the House October 24 but today?s version was modified to ease agreement with the Senate and ensure passage this year.

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