Being a first-time home buyer is an exciting time – taking that first step toward building your future and family. After Ashley and I moved into our first home, interest rates continued to drop to historic lows, so we decided to take advantage and refinance our mortgage just under two years ago. Unfortunately, we were still short of the all-important 80% loan-to-value (LTV) ratio, so we had to proceed with that little monster, private mortgage insurance (PMI), still hanging around.
While PMI allows new home owners that don’t have piles of cash lying around to get a little more out of their loan, it’s an extra expense that we could all find a better use for. The cancellation process seemed fairly straight forward, but our experience was far from that. I hope that the story of our nearly three-month process of calling and writing and waiting will help give others a plan of attack to expedite and remove the stress while dealing with their PMI. If you want the full story, keep reading. If you just want our lessons learned for canceling your PMI, feel free to skip to the end.
The Homeowner’s Protection Act (HPA) lays out the requirements for PMI cancellation pretty clearly. Since closing our refinance, I have been counting down the days until we hit 80% LTV to cancel our PMI payments. As the day approached, I contacted our mortgage servicer to see what the steps would be to start the process. The letter I received described our cancellation options. There was no mention of the HPA option to request cancellation at 80% LTV, only that we could pay our principal to 78% LTV or show proof of structural improvements resulting in an LTV at 75% or less. Calling customer service for the first time to understand this missing option, I was told to call back after we made our payment in a few weeks to reach 80% LTV.
Once our payment had processed, I called customer service again to see what the next step was. The first call of the evening went nowhere. After asking about HPA, I was told that each loan was unique and those requirements did not apply to our loan, our specific requirements would be listed in our closing documents. After tracking down our closing documents I found our requirements, which unsurprisingly matched HPA perfectly. So, back to customer service to determine the next steps. I was again told that those requirements did not apply to our loan. I resorted to reading the requirements from our closing documents word for word to the representative, after which I was given an address to submit a written request to cancel our PMI.
A few weeks after submitting our written request we received our response. Our request was denied because we did not meet the requirements outlined in the original letter we received (despite outlining the details of our closing documents and HPA in our letter). In the denial letter, I was given a direct contact for further questions. In my first call, I received the same generalized answers to specific questions. I was told that the servicer had no control over the lender requirements, but no specifics on if and why the lender requirements differed from HPA. Again, making no progress, it was off to do more research.
First step – figuring out the lender requirements. The big banks that commonly service mortgage loans act on behalf of the actual lenders backing the loans – typically Fannie Mae or Freddie Mac. After determining ours was backed by Fannie Mae, I began searching for the appropriate cancellation requirements. I found that the Fannie Mae requirements (see below) also matched those set by HPA and that there were no seasoning requirements for requesting cancellation at 80% LTV (some scenarios require you to have your loan for a minimum of two or five years). Additionally, I found an updated escrow agreement (required to be sent yearly by the mortgage servicer) that also listed the HPA requirements for cancelling PMI.
With the new information, I called the listed contact again to discuss my findings. After 45 minutes on the phone, she agreed that we meet all requirements to have our PMI cancelled. Though she claimed to have no direct control over PMI, her recommendation was to order an appraisal to verify our home had not dropped below the original value and our cancellation request should be complete. Nervous that we would have to deal with more phone calls following the appraisal, we went ahead and ordered it to move along the process.
Happy with the results of the appraisal, the final step was waiting another few weeks for the final decision. We were pleasantly surprised to have our cancellation finalized without any additional work.
CANCELLING YOUR PMI
Whether you’re battling with your mortgage servicer now or just preparing to get your PMI removed, here are some quick tips that I learned through our process to hopefully make your cancellation an easy one.
- REVIEW YOUR DOCUMENTS: If you have PMI, you should have a page in your closing documents titled “Private Mortgage Insurance Disclosure” that details your cancellation options. This should also display the date that your loan is scheduled to reach 80% LTV for you to request the cancellation. In addition to this, keep an eye out for your yearly “Escrow Account Disclosure Statement” from your servicer, which will show the most updated cancellation guidelines.
- KNOW HOW HPA PROTECTS YOU: Mortgages are unique in that you often don’t have a ton of control over who services your loans, since they are often bought and sold by the big banks. One protection you do have is the Homeowner’s Protection Act. Be sure you understand how this applies to your loan and the options it provides you.
- KNOW YOUR LOAN: Know the type of loan you have (e.g. conventional, fixed-rate, etc.) and who your lender is (Fannie Mae or Freddie Mac). Both of these things can influence your cancellation requirements. For Fannie Mae, you can find this information in Part II of the 2012 Fannie Mae Servicing Guide or in Part B – Chapter 8 of the 2014 Servicing Guide preview. For more information, here is a great guide on cancelling PMI.
- CUT TO THE CHASE: Once you know and understand your options for your loan, contact your customer service to determine where you should direct your written request for cancellation. If you’ve already done your homework and know the details, you’ll be able to move along in the process much quicker instead of looking for answers from the representatives on the phone. In your letter, clearly explain your justification for requesting cancellation, referencing HPA guidelines and/or your available documents if necessary.
- BE PERSISTENT: There were a number of times that the frustration of dealing with our mortgage servicer nearly led me to just paying the remainder of our PMI to avoid the hassle of endless phone calls. To this day, I’m not sure if the people on the phone did this intentionally to try to keep the payments flowing in, or if they truly just don’t understand the details of the loans they are servicing. Regardless, if you do your research, stick to your guns, and don’t accept anything less than specific, documented reasoning for why they cannot complete your request you should be happy with your results.
So glad that’s finally over and done with! Do you have any more tips for dealing with your mortgage company?!