Compliance Center: CFPB Releases PMI Cancelation and Termination Guidance

The Consumer Financial Protection Bureau (CFPB) released guidance to mortgage services related to the cancelation and termination of private mortgage insurance (PMI).  While the guidance does not create any new regulatory requirement it explains the regulatory requirements of the Homeowners Protection Act (HPA) and is intended to help servicers comply with the law.

PMI is designed to protect lenders if the borrower stops making payments.  Lenders generally require consumers to purchase PMI if their down payment is less than 20 percent of the sale price or the appraised value of the home.

The guidance focuses primarily on the HPA requirements for PMI cancelation or termination procedures and examples from the CFPB’s supervisory experience of practices that violate the HPA requirements or create a risk of noncompliance.

A borrower may initiate cancellation of PMI coverage for residential mortgage transactions by submitting a written request to the servicer.  The PMI shall be cancelled on the “cancellation date” which is defined in the HPA as either: (1) the date on which the principal balance of the mortgage is first scheduled to reach 80 percent of the “original value” of the property, or (2) the date on which the principal balance of the mortgage reaches 80 of the “original value” of the property based on actual payments.  In addition to reaching the 80% LTV threshold, the borrower must also meet certain other requirements for borrower-requested cancellation:

  • The borrower must have a good payment history;
  • The borrower must be current on the loan;
  • The borrower must satisfy any requirement of the holder of the mortgage for certification that the borrower’s equity in the property is not subject to a subordinate lien; and
  • The borrower must satisfy any requirement of the holder of the mortgage for evidence that the value of the property has not declined below the original value.

In addition to providing the borrowers right to request PMI cancellation, the HPA creates a requirement that PMI must automatically be terminated for residential mortgage transactions on the “termination date” if the borrower is current on the loan.  The “termination date” is defined as the date on which the principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the property securing the loan (irrespective of the outstanding balance for the mortgage on that date).  If the borrower is not current on the loan on the “termination date”, the HPA requires PMI to automatically be terminated on the first day of the month beginning after the date the borrower becomes current on the loan.

Compliance Question of the Week

What is FinCEN’s 314(b) program?

The 314(b) program allows financial institutions to share information with one another, under a safe harbor, to help better identify and report potential money laundering or terrorist activities.

This program is voluntary and credit unions should make sure that they are properly registered (if they choose to participate) and that they are sharing information only with other 314(b) registered financial institutions. If you are registered as a 314(b) information sharing institution, you should receive an email with a link to the most up to date list of other participants.

Resources

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA announced that it will hold a webinar on Internal Controls and Accounting Tips for Small Credit Unions on Wednesday, August 19. Credit unions can register for the free webinar here.

The NCUA announced that it awarded more than $2 million in grants to 225 low-income credit unions. The grants are aimed at helping the credit unions expand products and services, strengthen fraud prevention and cybersecurity protection, open new locations, and develop their digital offerings.

Consumer Financial Protection Bureau (CFPB)

The CFPB has updated its TILA-RESPA Integrated Disclosure Rule Implementation page and associated resources to reflect the new effective date of October 3, 2015.

The CFPB released a report on its “Know Before You Owe” eClosing project. The study found that borrowers can benefit from electronic closings and often times feel more empowered than borrower who just receive paper forms.

The CFPB issued Compliance Bulletin 2015-03: Private Mortgage Insurance Cancellation and Termination. As its title suggests, the bulletin discusses residential mortgage services and subservicers can cancel and terminate private mortgage insurance in compliance with the Homeowners Protection Act.

Federal Reserve Board (FRB)

The August edition of FedFocus is now available.

Office of the Comptroller of the Currency (OCC)

Comptroller of the Currency Curry discussed responsible innovation and risk management at a recent conference sponsored by the Federal Home Loan Bank of Chicago.  Curry’s remarks included new online and payment services, such as Apple Pay and virtual currencies and the risk that some of these innovations pose for consumers and financial institutions. 

OCC Comptroller Curry delivered prepared remarks at the Interagency Outreach Meeting on The Economic Growth and Regulatory Paperwork Reduction Act. Curry’s comments focused on relieving unnecessary burdens and the OCC’s efforts to reduce regulatory burdens.

The OCC released two risk management bulletins: OCC 2015-36 Tax Refund-Related Products and OCC 2015-35 Risk Management of Financial Derivatives.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of August 5, 2015. The last update prior to this was August 3, 2015.

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance News.