Automatic Termination of Conventional Mortgage Insurance

The servicer must not charge the borrower a fee for processing an automatic termination.

The servicer must take the following steps to terminate the MI, as applicable:

1. Determine when the MI is due to automatically terminate.

The servicer’s review must determine whether

  • a mortgage loan is eligible for automatic termination of MI based on the scheduled termination date (or the mid-point of the amortization period, as applicable), and

  • the borrower’s payments are current on that date.

The following table describes the timing of the automatic termination.

If the mortgage loan closed... Then the MI is eligible to be terminated...

on or after July 29, 1999 and is secured by a one-unit principal residence or second home

on the applicable termination date, provided the borrower’s payments are current on the termination date.

The applicable termination date is

  • the date the principal balance of the mortgage loan is first scheduled to reach 78% of the original value of the property, or

  • the first day of the month following the date the mid-point of the mortgage loan amortization period is reached, if the scheduled LTV ratio for the mortgage loan does not reach 78% before the mid-point.

before July 29, 1999, regardless of the property type; or

on or after July 29, 1999 and is secured by a one- to four- unit investment property or a two- to four-unit principal residence

on the first day of the month after the date that is the mid-point of the original amortization period, provided the borrower’s payments are current on that date.

Note: The servicer must determine the original value of the property in accordance with applicable law.

2. Verify the borrower’s payments are considered current.

The borrower’s payments are considered current if the payment due in the month preceding the scheduled termination date, or the mid-point of the amortization period, as applicable, was paid by the end of the month in which the payment was due.

The following table describes the action the servicer must take depending upon the status of the borrower’s payments.

If the borrower’s payments are... Then the servicer...

current and the mortgage loan is eligible for automatic termination based on its scheduled amortization

must terminate the MI immediately.

current and the mortgage loan is eligible for automatic termination based on the mid-point of the amortization period

must terminate the MI no later than the first day of the month following the mid-point date.

not current

must not terminate the MI, even if the other eligibility criteria for automatic termination are met.

The servicer must

  • notify the borrower within 30 days after the termination date the MI was not automatically terminated because the payments were not current, and

  • terminate the MI immediately if the borrower’s payments are current at the time of a subsequent review.

Borrower-Initiated Termination of Conventional Mortgage Insurance Based on Original Value of the Property

The servicer must take the following steps to evaluate the borrower's written or verbal request for MI termination due to reduction in the UPB through the payment of scheduled monthly payments or an unscheduled curtailment:

1. Verify the LTV ratio of the mortgage loan meets Fannie Mae’s eligibility criteria.

The following table describes the LTV ratio eligibility criteria.

If the mortgage loan is secured by... Then the LTV ratio eligibility criterion is met...
  • a one-unit principal residence or

  • second home

on the date the mortgage loan balance is first scheduled to reach 80% (or actually reaches 80%) of the original value of the property.
  • a one- to four-unit investment property or

  • a two- to four-unit principal residence

on the date the outstanding principal balance of the mortgage loan reaches 70% of the original value of the property.

Note: The servicer must determine the original value of the property in accordance with applicable law.

2. Verify the borrower has an acceptable payment record.

An acceptable payment record is achieved when the mortgage loan

  • is current when the termination is requested, which means the mortgage loan payment for the month preceding the date of the termination request was paid;

  • has no payment 30 or more days past due in the last 12 months; and

  • has no payment 60 or more days past due in the last 24 months.

Note: When assessing the payment history for a mortgage loan that has been outstanding for fewer than 24 months (or for a new borrower who assumed a mortgage loan within the last 23 months), the servicer must apply the acceptable payment record criterion to the length of time the mortgage loan has been outstanding (or that has elapsed since the new borrower assumed the mortgage loan).

The 12- and 24-month payment histories must be measured backward from the later of the date

  • the balance is first scheduled to reach, or actually reaches, 80% of the original value of the property; or

  • the borrower actually requests termination.

3. Verify the current value of the property is not less than its original value.

The servicer must obtain a property valuation from Fannie Mae's servicing solutions system to verify that the current value of the property is at least equal to the original value of the property and take the required actions based on the following table.

If... Then the servicer must...
Fannie Mae's servicing solutions system renders a current property value and the value is at least equal to the original value of the property terminate the MI and notify the borrower within 30 days of receiving the value.
Fannie Mae's servicing solutions system renders a current property value and the value is less than the original value of the property deny the borrower’s request for termination unless the borrower
  • pays down the mortgage loan balance to the point that satisfies Fannie Mae's LTV ratio eligibility criterion, or

  • chooses to verify that the current value of the property is at least equal to the original value of the property by following the procedure in Ordering Property Values for Mortgage Insurance Termination in F-1-02, Escrow, Taxes, Assessments, and Insurance.

Fannie Mae's servicing solutions system does not render a property value deny the borrower's request for termination unless the borrower chooses to verify that the current value of the property is at least equal to the original value of the property by following the procedure in Ordering Property Values for Mortgage Insurance Termination in F-1-02, Escrow, Taxes, Assessments, and Insurance
The BPO or appraised value is at least equal to the original value of the property terminate the MI and notify the borrower within 30 days of receiving the value.
The BPO or appraised value is less than the original value of the property deny the borrower's request for termination unless the borrower pays down the mortgage loan balance to the point that it satisfies Fannie Mae's LTV ratio eligibility criterion.

Note: The AVM value in Fannie Mae's servicing solutions system will be updated after 120 days.

If the request for termination is denied, the servicer must

  • notify the borrower and provide the grounds for denial, including the results of the AVM value, BPO, or appraisal used to make the determination, and

  • send this notice within 30 days of the date the servicer received the AVM value, BPO, or appraisal, if applicable and in accordance with applicable law.

The servicer is authorized to identify a mortgage loan that is close to or has reached the LTV requirements for MI termination based on original value and notify the borrower of the actions required to terminate MI. The servicer must terminate MI based on original value of the property only after receiving a direct response from the borrower to do so.

Borrower-Initiated Termination of Conventional Mortgage Insurance Based on Current Value of the Property

The servicer must not solicit a borrower for MI termination based on current value of the property. The servicer must only terminate MI based on current value of the property in response to a borrower-initiated request for termination.

If the borrower’s written or verbal request for termination based on the current value includes the information necessary to reach a decision, the servicer must evaluate the request based on the following:

1. Verify the LTV ratio of the mortgage loan meets Fannie Mae’s eligibility criteria.

Satisfaction that the mortgage loan meets the applicable LTV ratio eligibility criterion must be evidenced by obtaining a property valuation based on an inspection of both the interior and exterior of the property from Fannie Mae's servicing solutions system by following the procedure in Ordering Property Values for Mortgage Insurance Termination in F-1-02, Escrow, Taxes, Assessments, and Insurance.

The following table describes the LTV ratio eligibility criteria.

If the mortgage loan is... Then...
secured by a one-unit principal residence or second home

the LTV ratio must be

  • 75% or less, if the seasoning of the mortgage loan is between two and five years.

  • 80% or less, if the seasoning of the mortgage loan is greater than five years.

If Fannie Mae’s minimum two-year seasoning requirement is waived because the property improvements made by the borrower increased the property value, the LTV ratio must be 80% or less.

Note: The borrower must provide details to the servicer on the property improvements made since the mortgage loan's origination. Improvements that increase value are typically renovations that substantially improve marketability and extend the useful life of the property (e.g. kitchen and bathroom renovations and/or the addition of square footage). Repairs that are made to keep the property maintained and fully functional are not considered improvements.

secured by a one- to four-unit investment property or a two- to four-unit principal residence the LTV ratio must be 70% or less and the seasoning of the mortgage loan must be greater than two years.

2. Verify the borrower has an acceptable payment record.

An acceptable payment record is achieved when the mortgage loan

  • is current when the termination is requested, which means the mortgage loan payment for the month preceding the date of the termination request was paid;

  • has no payment 30 or more days past due in the last 12 months; and

  • has no payment 60 or more days past due in the last 24 months.

Note: When assessing the payment history for a mortgage loan and the borrower has made property improvements, the servicer must apply the acceptable payment record criterion to the length of time the mortgage loan has been outstanding.

If a mortgage loan has been assumed by a new borrower, the servicer must not agree to the termination unless the new borrower has a 24-month payment history for the mortgage loan.

The servicer must notify the borrower if the request for termination is denied and provide the reasons for denial, including the results of the BPO or appraisal. This notice must be sent within 30 days after the later of

  • the date the servicer received the borrower’s request for termination, or

  • the date the servicer received the BPO or appraisal.

Verification of Acceptable Payment Record for Borrowers Impacted by a Disaster

When verifying an acceptable payment history for a borrower that was impacted by a disaster event in which the servicer provided either disaster relief, forbearance, a repayment plan, or a Trial Period Plan and the borrower complied with the terms of such plan, the servicer must not consider any payment that is 30 or more days past due in the last 12 months, or 60 or more days past due in the last 24 months and attributable to the disaster event. This applies when reviewing the borrower's request for termination of conventional MI based on either original or current value of the property.

Terminating the Conventional Mortgage Insurance for a Modified Mortgage Loan

The MI termination eligibility criteria for a modified mortgage loan must be based on the terms and conditions of the modified mortgage loan, including the amortization schedule of the modified mortgage loan, and must comply with applicable law.

Finalizing and Reporting the Mortgage Insurance Termination

The servicer must automatically terminate the MI on the applicable termination date and must approve a borrower-initiated request for termination if the previously stated requirements for the applicable type of MI termination are met.

The servicer must not collect MIPs as part of the borrower’s mortgage loan payment more than 30 days after the later of

  • the date the servicer received the borrower’s request for termination (or the scheduled termination date or the mid-point of the amortization period, as applicable, for an automatic termination), or

  • the date all eligibility criteria for termination were satisfied.

The following table provides the requirements for finalizing and reporting the termination of the MI.

The servicer must...

Reduce the borrower’s mortgage loan payment by the amount that was being collected to pay the MIP within the required time frame, unless the MIP was financed as part of the mortgage loan amount.

Notify the borrower within 30 days after termination that the MI has been terminated and, if applicable, indicate no further escrow deposits for MI will be due from the borrower.

Forward any unearned MIP refund to the borrower as soon as it is received from the mortgage insurer, but no later than 45 days after the MI termination date.

Report the termination of MI to Fannie Mae with the next Fannie Mae investor reporting system reports it submits after the termination date. See Reporting Discontinuance of Mortgage Insurance in the Investor Reporting Manual for additional information.

Performing an Escrow Analysis Upon Termination of Mortgage Insurance

The following table outlines the actions the servicer must take depending on whether it performs a new escrow analysis at the time the MI is terminated.

If the servicer... Then...

does not perform a new escrow analysis

the servicer must advise the borrower that escrow deposits accumulated to pay off the next MIP will be considered in the borrower’s next escrow account analysis.

performs a new escrow analysis

the resulting change in the mortgage loan payment must not equal the amount previously escrowed for the MIP, should other escrow items need to be adjusted.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC-2019-03 May 15, 2019
Announcement SVC-2018-09 December 12, 2018
Announcement SVC–2017–07 August 16, 2017
Announcement SVC–2016–07 August 17, 2016