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Cancelling PMI when Home Value Increases

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Steve, who mentioned the now-unavailable Citi Home Rebate Mastercard I blogged about yesterday, also told me about his own experience with trying to get the PMI (private mortgage insurance) on his co-op mortgage canceled. When you put down less than 20% on the value of the home and thus have to get one or more mortgages to cover 80%+, lenders typically require you to also purchase private mortgage insurance (PMI). The Homeowner’s Protection Act of 1998 (effective July 1999) made the process automatic whenever you reach 22% equity based on the original assessed property value (you can request it at 20%) but what happens if your property appreciates significantly and you now owe less than 80% based on the current appraised value of the home?

You must request that the PMI be canceled and usually there’s some involved process. Here’s where Steve’s experience with Citi (I imagine this process is pretty standard across all lenders) will prove invaluable.

Recently, I decided to explore getting a reduction of my PMI on my mortgage. I live in Manhattan and have owned a Co-op (or shares in a Co-op to be more precise) for the past 3 years. Even though Manhattan is considered to be an expensive city, I consider myself to be frugal and don’t want to be giving away money where it is unnecessary to do so. Although it seemed that I may have purchased at the height of the market 3 years ago, the appeal of the beautiful 14 foot ceilings and 10% down requirement (typically 20-25% down is required here) proved to make the purchase an easy decision and in retrospect a good one financially. Based on the approximate 77% appreciation of my property in 3 years (based on sales of similar sales, and I hope the bottom doesn’t fall out), I got to wondering why I was still paying PMI, which is typically required for a Loan to Value ratio of 80% or greater. So, I decided to contact Citimortgage and see if there was anything I could do about it.

The process thus far has been quite easy, with some out of pocket expense. However, the risk of the expense was minimal compared to the annual savings I might see over the next 3-5 years for not paying PMI. I contacted the friendly folks at CitiMortgage and the Reps put me in touch with the PMI Department. The PMI Department informed me that I would need to send my request in writing, along with a check for $295 (non-refundable and possibly lower depending on where you live) to pay for a proper appraisal required by the PMI Insurer. They mailed me quite a bit of information, including some documents that seemed to indicate they would not perform a re-evaluation of PMI based on property appreciation. However, upon further discussion, they will in fact consider appreciation as part of
their decision, but other lenders may differ in their practices.

After cashing my check, they had an appraiser contact me and conduct what was, by Manhattan standards, a very extensive appraisal. My experience for co-ops here is that the Appraiser will take about 5 minutes to look around and ask you for what price you think you’d sell the property and base the appraisal on that. However, in this case, they were very thorough, including taking space measurements, requesting information on the number of shares that I own in the co-op, and informing me that they will be contacting the Co-Op’s Managing Agent to get information on recent sales. I am hoping that all of the combined factors will lead to a favorable decision, and I will keep you apprised of CitiMortgage’s decision.

Your faithful reader,

Steve

So getting the PMI canceled because your home appreciated comes with some expense can share some insight about general industry practices) but seems like a pretty straightforward process where if the appraiser’s appraisal shows you’re now under 80% loan-to-value then you should be all set. Hopefully everything happens as smoothly as Steve describes and he can get that expense knocked off the books.

If you are requesting that PMI be canceled because you’ve reached a LTV of 80% (it’s automatic once you read 78%), The Homeowner’s Protection Act of 1998 prohibits a lender from charging you for removal of PMI (even if they hide it behind some service, legally they are obligated to remove it without any other service required). In this particular case, the LTV is still greater than 80% and Steve is looking to get the ‘V’ portion of the calculation made larger so I can understand the appraisal fee (sort of, but it’s obvious they want to collect a little extra).

Thank you for sharing your experience Steve!

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14 Responses to “Cancelling PMI when Home Value Increases”

  1. Jason says:

    This is a very interesting article but not entirely accurate. The The Homeowner’s Protection Act of 1998 as mentioned above requires the lender to remove PMI based on the ORIGINAL APPRAISED VALUE not necessarily the new appraised value. When a new appraisal is done your lender will confirm with the innvestor what their requirements are. In my case, I spent $300 on a new appraisal that put my house at a 76.5% Loan to Value and I thought I was getting PMI removed. I found out 3 weeks later after submitting my request the investor wanted to be 75% or less. Just keep in mind that the 80% / 78% is based on ORIGINAL APPRAISAL.

    Jason

  2. jim says:

    So you’re saying even if the LTV on the new value was under 80%, they wouldn’t remove it?

  3. David Porter says:

    Jim,

    Here is a piece that I did on this subject a while back. If you, or your readers have further questions, please give me a shout.

    Ask Dave! – Getting Rid of PMI Insurance

    [edit: unfortunately David's blog has been removed ]

  4. Tyler Weaver says:

    I believe my PMI with my government loan is fixed term. However, it is irrelevant since the price of capital is so low… I am going to drag this one out as long as possible probably.

  5. Ann says:

    My spouse and I have paid down our $160,000 mortgage to $124,000 in the first 15 months of our 30 year mortgage. This corresponds to Loan-to-Value (LTV) under 78%. Two months prior to closing our home appraised for $170,000. This statement qualifies that the appraisal is 17 months old. Additionally, local real estate values for homes similar to ours have appreciated about $20,000.

    Our PMI is about $900 a year. We requested termination of PMI to our mortgage broker verbally and in writing. His response on our answering machine is that the “RULE” is that we must wait 24 months from the origination of the mortgage, before making the request. At that time we must purchase a new appraisal and then the request will be considered.

    Does the Homeowner’s Protection Act of 1998 allow this manatory 24 month waiting period? Or can this stipulation LEGALLY be written into a mortgage agreement?

    If anyone can direct us to a government agency or other reputable website on this matter, we would greatly appreciate it. Also, any suggestions on courses of action are welcome. Thanks in advance!

  6. Stacie says:

    @ Ann: From the information I have found on various websites, they cannot require you to have another appraisal done. The law specifically refers to the original appraisal value. I have seen references to your loan having to be current for the previous year, but maybe it is two years. Check with your state’s attorney general’s office. (I realize this info may be too late for you based on your posting date, but maybe it will help someone else.)

    I had my home reappraised after three years of regular payments. The new value would put me over the 80%. The company told me, however, that since it was within the first five years of my loan, they required a 75% ratio for the new appraisal. I needed to pay an additional $4,000+ to get to that point, which I couldn’t do on the spot. I just kept making regular payments thinking the PMI would be cancelled when I reached 5 years and could then use the 80% value. What they didn’t tell me until it was too late is that the new appraisal was only good for six months. The appraised value dropped back to the original when I got my annual statement. I had to call to find out that the now 4 year old figure is considered more valid than the 1 year old figure. I haven’t had any luck finding out if this is something I can legally dispute. The company wouldn’t refund any of my $350 fee for the appraisal even though they did not disclose the six month rule on new appraisals.

  7. Most of the focus this summer for our appraisal business has been on folks refinancing to take advantage of low rates. Not so much on PMI removal.

    We hope, hope, hope, however, that PMI removal gets back on the upswing because it means, in part, that homes values are rising again!

    Great article here!

  8. Tracy Beach says:

    I recently requested PMI to be removed from Citimortgage. They said that I qualify for it to be removed because I was at 74.3% LTV. I had paid off 25.7% of my loan about 3.5 months ago now.

    However, they said that to get it completely removed I had to have an appraisal to make sure my property value hadn’t gone below the loan amount. $385 for the appraisal. I asked Citimortgage about the Home Owners Protection Act of 1998 and why my PMI wasn’t automatically terminated when I owned 22% of my loan and they basically said they didn’t pay attention to that act and that they weren’t familiar with it. I kid you not.

    So now I have an appraiser coming over this Friday, Nov 12. This guy was chosen by Citimortgage’s LSI firm. The guy doesn’t even have a website or a listing in the BBB and his name is John Hinkley. On top of that, he will not even divulge any information to me and will only send his report to Citimortgage.

    Does this not smell of a complete and utter scam? Who or where do I go to get someone to consult me on the HPA of 1998? Do I need a lawyer here? Any advice would be very appreciated. I feel at this point I’m due some pay back from Citimortgage and am tired of being taken advantage of. I’ve never missed a payment and am a good customer.

  9. Ryan says:

    Tracy,

    I just had a similar conversation with Citimortgage that left a bad taste in my mouth. He said I needed to get down to 78% loan-to-value, but that to determine that, a mandatory $385 (that I have to pay) appraisal has to be conducted.

    I’ll have to do some more reading on the home owner protection act, but it certainly seems that Citimortgage is not following the guidelines about 78% LTV using the “original appraised value” for the “V”.

    What can one do to fight it, even if they aren’t following regulation? They have you over a barrel. You don’t want to make too big a fight over it because they are holding the keys to your mortgage and credit score, and could easily make one’s life a living hell if they chose to.

    I’m trying to figure out what the motivation is for Citi, since they aren’t the insurance policyholder… but I guess the motivation is that they get to hold onto more escrow money.

    Banks suck.

  10. Herman F. Posner says:

    Request copy of PMI appraisal amount on account number 0770211308. Property located at 905 Powderhorn, Roundrock, TX 78681. Need copy for tax purposes. Thank you.

    We may be reached at bjandherb@yahoo.com
    or by phone at 623-975-0071.

    Herman F. Posner
    Betty Jean Posner

  11. Brian Bober says:

    Sadly, HPA fails because HPA requires automatic cancellation based on when the loan is SCHEDULED to reach 78%, not when it reaches 78%. Therefore, you get no benefit under HPA for pre-payment unless you completely pay off the loan. You could pay it down to 10% and still have to pay PMI.

    At 80% LTV, you can request cancellation but have to follow the lender’s rules. Citi requires an appraisal fee :-(

  12. Brian Bober says:

    Btw, I’m at 76% LTV and won’t have it automatically cancelled until 2015 unless I get it appraised by Citi. More info here: http://www.federalreserve.gov/boarddocs/supmanual/cch/hpa.pdf

  13. Lilly says:

    My pmi is due to expire in April of 2012, citi Mortgage said they will not remove it until i pay the late fees. Can they do that

  14. netdragon says:

    “it’s automatic once you read 78%”

    This is inaccurate. It is automatic when the DATE is reached where it would be 78%. I’m looking at it right now.

    Cancellation under 80% of the LESSER of original appraisal or purchase price (whether date, or due to pre-payment) REQUIRES an appraisal.

    So, no, it’s not automatic. Unless you wait X number of years.


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