We are reviewing our compliance with the HPA and are uncovering some questions regarding the requirements of PMI on ARMs. Since they are adjustable, we do not provide an initial amortization schedule, but HPA early disclosure seems to allude to the timing when auto termination of PMI occurs as 78% ‘based solely on the amortization schedule then in effect for your loan’. We are unclear on a few things: 1. Should we cancel PMI on the actual date the LTV (based on current loan balance and the initial value) reaches 78% or based on what an initial amortization would show at origination (which means the true LTV on that date may be higher or lower than 78% if the rates adjusted causing P&I payments to change from original schedule) and 2. Should we be creating an amortization schedule or something similar for the borrowers to provide them with more information regarding the dates that the cancellation percentages may occur?
For an adjustable-rate mortgage, you may cancel,
i. Based solely on the amortization schedule then in effect for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 80 percent of the original value of the property securing the loan; or
ii. Based solely on actual payments, first reaches 80 percent of the original value of the property securing the loan.
If you choose option i. the amortization schedule is recalculated every time the rate adjusts.
Section 4903(a)(1)(B) of the HPA states that will notify the mortgagor when the cancellation date is reached.