The Homeowners Protection Act of 1998 (HPA) protects consumers from being required to overpay on private mortgage insurance (PMI). PMI protects lenders from loss if/when borrowers default on their home loans, but those monthly costs or higher interests represent a potential burden on homeowners. So, how does the HPA protect homeowners, and how does it work?
What Is the Homeowner’s Protection Act?
The Homeowners Protection Act of 1998 (12 U.S.C. § 4901. et seq.) is sometimes called the Act or PMI Cancellation Act, because it may eliminate the requirement to pay private mortgage insurance (PMI). The Act may limit the time period homeowners are required to pay it. The HPA was signed into law on July 29, 1998, but it did not become effective until the following year, on July 29, 1999. The law was further amended on Dec. 27, 2000.
Why Is the HPA Necessary and Important?
The Homeowners Protection Act of 1998 passed because of problems that homeowners were experiencing with excessive PMI coverage requirements and difficulties canceling that coverage, even when they had reached conditions where it should no longer have been necessary.
The HPA offers further recourse if/when lenders offer limited options and refuse to cancel PMI coverage for borrowers. It not only protects homeowners, but it standardizes policies and procedures to prevent and mitigate the effects of abuse.
Who Is Covered By the Act?
The HPA doesn’t cover all home buyers for Veteran Administration (VA) or Federal Housing Administration (FHA) loans that are backed by the government. High-risk and conforming loans are not covered either. That still leaves residential home loans for condos, single-family homes, and multi-unit housing.
Tip: Capacity provides instant access to Fannie, Freddie, USDA, FHA & VA guidelines, so you will always know who is covered. You can find further details in Capacity’s AI-powered Knowledge Base.
Who Enforces the Homeowner’s Protection Act?
The Consumer Financial Protection Bureau (CFPB) enforces and supervises compliance with the HPA. They are a government agency, established to protect borrowers from unfair business practices by financial institutions, lenders, and banks. The Dodd-Frank Act granted that authority to the CFPB to address outstanding confusion and abuses related to PMI requirements and cancellations, with the power to enforce the Homeowners Protection Act of 199.
How Does the HPA Work?
The Homeowner’s Protection Act formulates rules that can reduce and eliminate payment requirements of PMI. For example, a lender must resolve the PMI from a loan when the borrower meets certain conditions:
- Their loan-to-value (LTV) ratio is at 80%.
- Their equity is at ~20, meaning they’ve paid down the principal on the mortgage.
The HPA lays out what should happen to unearned premiums, paid by the borrower. A critical part of the Act requires lenders to disclose borrower rights, which includes:
- Amortization schedule details
- Timeline for when to request a cancellation of PMI
- Limiting factors or features that could prevent the PMI from being canceled
Besides any notification of rights and cancellation, lenders must send an annual notice to borrowers with a reminder that they can cancel their PMI. The HPA benefits homebuyers by ensuring that they are better informed about their rights regarding what they are required to pay. The Act also lets them know when they can cancel PMI.
Tip: Intelligent Document Processing streamlines and automates the entire application and notification process. Buyers and lenders quickly get what they need to move forward in the process while complying with all legal requirements.
How Capacity Can Help Lenders Close More Loans
Request a demo to learn more about how we can help you navigate the Homeowners Protection Act, with our mortgage support automation platform. It’s designed to support the needs of sellers, borrowers, and even support staff with the speed, accuracy, and oversight that mitigates the loss.
Capacity is an industry leader in support automation. Mortgage clients leverage Capacity to automate 90% of the manual, repetitive questions hitting their operational teams like scenarios, processing, underwriting, lock desk, compliance and customer support. We help our clients defect low value tasks from their high value resources.