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How to cancel mortgage insurance


AS MANY as 50,000 homeowners who are eligible for cancellation of their monthly private mortgage insurance (PMI) payments - often costing them $1,000 a year or more - have not asked to do so.

Why? Some of them may not be aware of their legal right to stop paying insurance premiums. Others may not know how to start the cancellation process or fear the paperwork and expense.

Whatever the case, here's a message for them: Do it!

Why pay good money every month for something you don't need? Now more than ever before, there are PMI-cancellation resources available to help guide you through the process, step by step. Some of the resources are free. Others will cost you a chunk of money, but will guarantee the results.

At the top of the list of free resources is a new, online service that helps you calculate whether you're eligible for premium cancellation, explains your legal rights and answers the most common questions.

The sponsor of the service is the PMI industry's own trade group, the Mortgage Insurance Companies of America. After Wednesday, you'll be able to get practical and authoritative advice - including a PMI cancellation calculator and model letters for you to send your mortgage servicer to initiate cancellation - at the Web site

Effort to reach out

The free service is being launched, according to an industry official, to "make the whole process as consumer-friendly and understandable as possible. We really would like to reach out to those people who may be eligible" to cancel their PMI but have not done so.

These are primarily homeowners whose loans are owned by giant investors Fannie Mae and Freddie Mac and whose equity levels in their properties exceed 20 percent of current market value.

The industry estimates that between 30,000 and 50,000 borrowers around the country meet all the requirements for cancellation because of high appreciation of home values in their area and capital improvements they've made to their homes.

Under federal legislation enacted more than two years ago, homebuyers paying PMI can request cancellation of premiums at the 20 percent equity level, provided they have paid their loans on time. For mortgages less than five years old, Fannie and Freddie may require a higher equity threshold, 25 percent. Neither company permits cancellations on loans less than two years of age, no matter what equity level the borrower has attained.

On the key test of "good payment history," the new online service details what standards mortgage servicers expect homeowners to meet:

Payments current at the time of application for PMI cancellation.

No payments more than 30 days late in the past 12 months.

No more than one late-payment penalty in the past 12 months.

No notice of default recorded against the property.

On the subject of property valuations for PMI cancellation, the new service notes that a new appraisal may - or may not - be necessary. Certain servicers will settle for broker price opinions (BPOs) or comparative market analyses (CMAs) that are far less expensive than full appraisals.

Don't do own appraisal

Can you order your own appraisal and use it to get your PMI cancelled? The new advisory service's answer is an emphatic no.

"Your servicer will arrange an appraisal from a qualified and approved appraiser. If you get an appraisal that is not from an approved appraiser, you will have to pay the additional cost for a second appraisal from an appraiser who is on the servicer's list of approved appraisers."

At the other end of the spectrum for PMI cancelation advice is a commercial service that charges $499 to handle the entire transaction for you.

A Massachusetts-based firm ( promises to take care of all correspondence, escrow account analyses and disputes with servicers should you prefer not to get involved. When visited in mid-May, the firm's Web site offered a complete cancellation package for "$199," but Chief Executive Officer Kevin Heffernan said that "that needs to be updated" and that the standard fee is now $499, including an appraisal.

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington D.C. 20071.

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