Homeowners Protection Act

Question 1

What is the purpose of HOPA?

Answer 1

Establishes provisions for terminating and cancelling PMI including requirements for disclosures, notification, and return of unearned premiums.

Question 2

What is PMI?

To buyers vs. creditor.

Answer 2

Private Mortgage Insurance that protects lenders from the risk of default and foreclosure. Allows banks to recover costs associated with resale of foreclosed property, accrued interest, and fixed costs.

Allowing buyers who cannot provide significant down payments to obtain mortgage financing at affordable rates. Usually used on high ratio loans (LTV exceeds 80%)

Question 3

What types of loans does HOPA apply to?

Answer 3

Residential mortgage transactions consummated after 1999 to finance the acquisition, initial construction, or refinancing of an owner occupied single family dwelling.

Mortgage insurance for FHA/VA loan is excluded from HOPA.

Question 4

What is the original value defined as for a mortgage?

Answer 4

The lesser of:

Sales price of secured property

Appraised value at time of loan consummation (always used for refinance)

Question 5

How would a borrower request cancellation of PMI?

Answer 5

Submit a written request to servicer.

Question 6

When will a servicer cancel PMI?

Answer 6

When the cancellation date occurs, which is when the principal balance of loan reaches or is scheduled to reach 80% of the original value.

And as long as:

• the borrower submits a written cancellation request
• the borrower has good payment history
• borrower is current
• borrower provides proof that property value has not declined below original value, as well as, proof there is no subordinate lien.

Question 7

What date is PMI cancellation effective?

Answer 7

the servicer may not require further payments of PMI after the later of either:

• 30 days after written request was received
• 30 days after borrower satisfied evidence and certification requirements (appraisal, and certification of no subordinate lien)

Question 8

When are servicers required to automatically terminate PMI?

Answer 8

• date principal balance is scheduled to reach 78% of original value if borrower is current
• If not current, first day of the first month following the date the borrower becomes current.

Question 9

What is considered a “good payment history” for PMI cancellation?

Answer 9

• no payments 60+ days past due within first 12 months of last 2 years prior to later of cancellation date or date of cancellation request
• no payments 30+ days past due within 12 months prior to the later of the cancellation date or date of cancellation request

Question 10

What date is PMI termination effective?

Answer 10

The sooner of:

• 30 days after the termination date
• 30 days after date following the termination date in which borrower becomes current.

Question 11

Is a borrower required to provide proof of property value for PMI termination?

Answer 11

No, there is no provision for automatic termination that protects the lender against declines in property value or subordinate liens.

Question 12

When is final PMI termination required?

Answer 12

If PMI was not cancelled or automatically terminated based on requirements:

servicer must terminate PMI by first day of the month immediately following the midpoint of the loan’s amortization period if borrower is current on that date.

-If borrower is not current, PMI should be terminated once borrower becomes current.

Question 13

When is the midpoint of an amortization period?

Answer 13

Halfway through the period between the first day of the amortization period and ending when mortgage is scheduled to be amortized.

Question 14

When is final termination effective?

Answer 14

30 days after PMI is terminated.

Question 15

How do loan modifications impact PMI cancellation, termination, and final termination?

Answer 15

All dates are recalculated to reflect the modification

Question 16

Do cancellation and termination provisions apply to Lender Paid PMI?

Answer 16

No they only apply to Borrower Paid PMI

Question 17

When must the servicer return unearned premiums for termination or cancellation?

Answer 17

45 days after cancellation or termination

Question 18

When must the mortgage insurer return all unearned premiums to the servicer?

Answer 18

30 days after notification by the servicer of cancellation or termination of PMI so the servicer may return such premiums to the borrower.

Question 19

Do traditional Cancellation and Termination provisions apply to “high risk loans”?

Answer 19

No, high risk loans are subject to final termination.

Question 20

What are the categories of high risk loans?

Answer 20

Conforming (Fannie/Freddie high risk loans)

Nonconforming (lender defined high risk)

Question 21

What is a conforming loan?

Answer 21

Loans with original principal balances not exceeding Freddie or Fannie conforming loan limits. 2021 limit was $548,250 and $822,000 in high cost areas.

These loans are not subject to borrower cancellation and termination requirements under HOPA. They are subject to final termination.

Question 22

When must PMI be terminated for a high risk conforming loan?

Answer 22

• first day of first month following date of midpoint of the loan as long as borrower is current.
• if not current, on the date borrower becomes current.

Question 23

What are non-conforming high risk loans?

Answer 23

Mortgages that exceed Freddie and Fannie conforming loan limits. 2021 limit is $548,250 and $822,000 in high cost areas.

Or loans that are lender defined high risk.

These loans are not subject to cancellation and termination requirements.

Question 24

When must PMI be terminated for non-conforming high risk loans?

Answer 24

• first day of first month following date of midpoint of the loan as long as borrower is current.
• if not current, on the date borrower becomes current.

Question 25

When must PMI be terminated for lender defined high risk loans?

Answer 25

-date when principal balance based on amortization schedule is scheduled to reach 77% of original value of secured property.

Question 26

How should a servicer determine if the principal balance reaches PMI cancellation or termination requirements?

Answer 26

• Initial amortization schedule (fixed rate loans)

- Amortization schedule in effect (adjustable rate loans)

Question 27

Is PMI cancellation based on the outstanding principal balance on the loan?

Answer 27

No, it is based on the principle balance identified solely in the amortization schedule.

Question 28

What notices are required at consummation for high risk transactions regarding HOPA?

Answer 28

• That in no case will PMI be required beyond the midpoint of the amortization period of the loan if current.
• Lender defined high risk loans must include specific notice as to the 77% LTV termination standards.

Question 29

What initial disclosures are required for fixed rate loans? (non-high risk)

Answer 29

• written amortization schedule
• notice containing:
• -right to request PMI cancellation at 80% based on amortization schedule
• -right to request cancellation earlier if actual payment bring loan balance to 80% sooner than amort
• -PMI will automatically terminate at 78% based on amort
• -Exemptions to cancellation and termination for high risk mortgages and if those exemptions apply to the borrowers loan.

Question 30

What initial disclosures are required for ARMs? (non-high risk)

Answer 30

• notice that discloses:
• -Right to PMI cancellation at 80% based on amort in effect or date balance actually reaches 80%, and that servicer will notify borrower when either occurs.
• -PMI will terminate when loan reaches 78% based on amort in effect and borrower will be notified of termination/ termination once current.
• -Exemptions to cancellation and termination for high risk mortgages, and if such exemptions apply to the borrowers loan.

Question 31

What initial disclosures are required for high risk transactions?

lender defined?

Answer 31

-notice that PMI will not be required beyond the date that is the midpoint of the loans amortization period as long as borrower is current.

Lender defined need not provide disclosure of the termination at 77%

Question 32

When are annual notices required?

Answer 32

All residential mortgage transactions including high risk mortgages.

Question 33

What must be included in the annual notice?

Answer 33

• Statement that PMI may be cancelled with the consent of the lender or in accordance with state law
• Provide servicer address and telephone number, so borrower may contact servicer to determine if borrower may cancel PMI.

Question 34

What must be included in the cancellation/termination notice for standard mortgage transactions?

Answer 34

• PMI has terminated and borrower no longer has PMI

- No further premiums, payment, or other fees are due or payable in connection with PMI

Question 35

When must the servicer provide the borrower with a cancellation/termination notice?

Answer 35

No later than 30 days after PMI is cancelled or terminated.

Question 36

What notice requirements are there when a servicer determines a transaction does not qualify for PMI cancellation or termination?

Answer 36

• Written notice of grounds relied upon for the determination.
• If an appraisal was used the results must be provided to the borrower.

Question 37

What are the timing requirements for the notice of grounds/that PMI will not be cancelled or terminated?

Answer 37

Provide no later than 30 days following:

• date of cancellation request received
• date borrower satisfies evidence and certification requirements
• the scheduled termination date.

Question 38

What is borrower paid PMI vs. lender paid PMI?

Answer 38

BPMI - PMI required for which the payments are made by the borrower

LPMI - PMI required for which the payments are made by a person other than the borrower.

Question 39

What is a loan commitment?

Answer 39

Written confirmation from prospective lender to borrower on application approval, including applicable closing conditions.

Question 40

What disclosures are required for LPMI in when a loan commitment is made? (6)

Answer 40

notice advising difference between LPMI and BPMI including:

• LPMI differs from BPMI because it cannot be cancelled by the borrower or automatically terminated
• LPMI usually results in mortgage having higher interest rates then BPMI
• Terminates only when the mortgage is refinanced, paid off, or otherwise terminated.
• that LPMI and BPMI have both benefits and disadvantages
• Generic analysis of costs and benefits of LPMI vs BPMI on mortgage over a 10 yr period
• That LMPI may be tax deductible.

Question 41

What are the notice requirements for mortgages with LPMI at termination date?

Answer 41

-no later than 30 days after termination date would apply in the case of BPMI, servicer will provide borrower written notice that borrower may wish to review financing options that could eliminate requirement for LPMI

Question 42

Can fees be imposed on borrowers for disclosures?

Answer 42

No

Question 43

How can servicers be held liable if they violate HOPA from an individual?

Answer 43

• Individual action:
• -Actual damages and interest on such damages
• -statutory damages $2,000 or less
• -Costs of action
• -Reasonable attorney fees

Question 44

How can servicers be held liable if they violate HOPA from multiple individuals?

Answer 44

• Class action:
• -Statutory damages lesser of $500M or 1% of liable party’s net worth
• Costs of action
• Reasonable attorney fees

Question 45

What is the statute of limitations on legal action?

Answer 45

Borrower(s) must bring action within 2 years of borrower discovery.

Question 46

Can a servicer be held liable if failure to comply is the result of the mortgage insurer or lender?

Answer 46

No

Question 47

How can the FDIC enforce HOPA violations?

Answer 47

• Notify lenders or servicers of failure to comply
• Require corrective action of impacted accounts
• return unearned PMI premiums to borrowers

Question 48

What notice should be provided to ARM borrowers when they reach the cancellation date (80%)?

Answer 48

There is no required form outside of the initial disclosure indicating that the servicer must notify the borrower when they reach the cancellation date.

Discussion board says the institution or servicer can notify the ARM borrower in writing or via telephone when the cancellation date is reached and communication should be documented in the file. (written notice is best practice). They should be notified by the cancellation date or within a “short” time afterwards.

Question 49

Are PMI premiums required to be refunded in the case of refinance or loan payoff?

Answer 49

No, refinances or payoffs to not meet the cancellation requirements under HOPA and the bank would not be required to refund PMI premiums.

Some PMI policies are considered “refundable” and would allow for a refund in this case; however, “non-refundable” policies would follow HOPA requirements for refunds.

Question 50

If a borrower pays down the loan to 78% prior to the termination date on the original amortization schedule is a bank required to automatically terminate PMI?

Answer 50

No, the borrower may request cancellation if actual payments reduce the principal to 80% of the original value.

However, the bank is not required to automatically terminate based on actual payments. Automatic termination is based solely on the original amortization schedule, and the bank is not required to terminate if the borrower pays down the balance faster than the amortization schedule.