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

If the borrower’s written request for termination includes all of the information necessary to reach a decision, the servicer must take the following steps to evaluate the request:

1. Verify the LTV ratio, or CLTV ratio if applicable, of the mortgage loan meets Fannie Mae’s eligibility criteria.

The following table describes the LTV ratio, or CLTV ratio if applicable, eligibility criteria.

If the mortgage loan is... Then...

a first lien mortgage loan closed on or after July 29, 1999 and is secured by a one-unit principal residence or second home

the LTV ratio eligibility criterion is met 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 first lien mortgage loan closed before July 29, 1999 and is secured by a one-unit principal residence or second home delivered under a negotiated contract that prohibits the cancellation of MI until a specified term has elapsed

the LTV ratio eligibility criterion is met on the date the mortgage loan balance actually reaches 75% of the original value of the property, if the mortgage loan is seasoned for two or more years, even if the original specified term has not elapsed.

any other first lien mortgage loan

the LTV ratio eligibility criterion is met on the date the outstanding principal balance of the mortgage loan reaches the applicable percentage of the original value of the property, which is as follows:

  • 80% for a mortgage loan secured by a one- unit principal residence or second home.

  • 70% for a mortgage loan secured by a one- to four-unit investment property or a two- to four-unit principal residence.

a second lien mortgage loan

the CLTV eligibility criterion is met on the date the sum of the outstanding principal balances of all mortgage loans secured by the property reaches 70% of the value of the property at the time the second lien mortgage loan was originated.

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 current 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 current borrower assumed the mortgage loan).

The 12- and 24-month payment histories must be measured backward from the date indicated as follows:

  • For mortgage loans secured by one-unit principal residences or second homes originated on or after July 29, 1999, the date is 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 date the borrower actually requests termination.

  • For all other mortgage loans, the date on which the MI terminates.

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

The servicer must warrant that the current value of the property is at least equal to the original value of the property. The servicer may choose to order a BPO, a certification of value, or a new appraisal to verify the current value of the property, in which case it must select the broker or appraiser, order the valuation, and receive the results directly.

The servicer must follow the procedures in Verifying Property Value for MI Termination in F-1-02, Escrow, Taxes, Assessments, and Insurance for details on Fannie Mae’s requirements.

The servicer’s action depends on the current value of the property as described in the following table.

If the current value of the property is... Then the servicer...

at least equal to the original value of the property

must terminate the MI and notify the borrower.

less than the original value of the property

must deny the borrower’s request for termination unless the property value is based on a new appraisal and the borrower pays down the mortgage loan balance to the point that it satisfies Fannie Mae’s applicable LTV or CLTV ratio eligibility criterion.

The servicer must notify the borrower if the request for termination is denied and provide the grounds for denial, including the results of any BPO, certification of value, or appraisal the servicer ordered. This notice must be sent within 30 days of the date

  • the servicer received the borrower’s request for termination; or

  • the servicer received the BPO, certification of value, or new appraisal, if applicable.

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

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

1. Verify the LTV ratio, or CLTV ratio if applicable, of the mortgage loan meets Fannie Mae’s eligibility criteria.

Satisfaction that the mortgage loan meets the applicable LTV ratio or CLTV ratio eligibility criterion must be evidenced by a new appraisal based on an inspection of both the interior and exterior of the property and prepared in accordance with Fannie Mae’s appraisal standards for new mortgage loan originations. The servicer must select an appraiser, order the appraisal, receive the results directly, and send a copy of the appraisal to the borrower.

The following table describes the LTV ratio, or CLTV ratio if applicable, eligibility criteria.

If the mortgage loan is... Then...

a first lien mortgage loan 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 for the first lien mortgage loan must be 75% or less.

a first lien mortgage loan 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, regardless of the seasoning of the mortgage loan.

a second lien mortgage loan

the CLTV ratio must be 70% or less, regardless of the seasoning of the mortgage loan.

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.

If a mortgage loan has been assumed, the servicer must not agree to the termination unless the current 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 appraisal the servicer ordered. 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 appraisal.

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–2017–07 August 16, 2017
Announcement SVC–2016–07 August 17, 2016