Homeowners Protection Act

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Homeowners Protection Act — What it is and how it works

The Homeowners Protection Act (HPA) of 1998, sometimes called the Private Mortgage Insurance (PMI) Cancellation Act, reduces unnecessary payments of private mortgage insurance by homeowners who no longer need it. It applies to private, residential mortgages purchased after July 29, 1999, and requires lenders to disclose PMI terms and follow uniform procedures for cancelling PMI.

Why PMI exists

  • Lenders typically require about a 20% down payment. If a borrower puts down less, the lender often considers the loan higher risk.
  • Private mortgage insurance (PMI) protects the lender if the borrower defaults and the home is foreclosed.
  • PMI premiums can be added to monthly mortgage payments or incorporated into a higher interest rate.

How the HPA protects homeowners

  • Requires lenders to disclose PMI costs and cancellation rights.
  • Prohibits “life-of-loan” PMI on borrower-paid PMI products in many cases, preventing indefinite PMI when equity has been built.
  • Establishes uniform rules for cancelling PMI and requires automatic termination of PMI once a homeowner accumulates the required equity.
  • The Consumer Financial Protection Bureau (CFPB) supervises and enforces compliance with the HPA.

When PMI can be removed

  • PMI is typically removable once the borrower has about 20% equity in the home — commonly expressed as the loan-to-value (LTV) ratio dropping to 80%.
  • Before the HPA, cancellation policies varied widely and many borrowers had difficulty getting PMI cancelled. The HPA standardizes this process and improves borrower protections.
  • Note: The HPA does not apply to Veterans Affairs (VA) or Federal Housing Administration (FHA) loans.

What homeowners should do

  • Review mortgage documents and PMI disclosures to understand specific terms and cancellation rights.
  • Track your equity and LTV as you repay principal or as your home’s value changes.
  • When you reach the typical eligibility threshold (about 20% equity / 80% LTV), contact your loan servicer to request PMI cancellation and follow their required documentation or appraisal process.
  • Keep records of communications and documentation in case you need to demonstrate eligibility for cancellation.

Key takeaways

  • The HPA helps homeowners avoid paying unnecessary PMI by requiring disclosures, standardizing cancellation rules, and mandating automatic termination once required equity is reached.
  • PMI generally ends when the borrower’s equity reaches about 20% (or LTV drops to roughly 80%), but the law does not cover VA or FHA loans.
  • The CFPB enforces compliance with the HPA.