by Karen Hube
Jim Hansen didn't get mad, he got even.
The Republican congressman from Utah
was shocked when he couldn't cancel the
private mortgage insurance on his
Washington-area condo. So he
sponsored the Homeowners Protection
Act of 1998, a measure that goes into
effect Thursday and that will help some
homeowners get out of paying for pricey
private mortgage insurance. "It became
pretty obvious to me someone was
jerking me around -- and they must be
jerking a lot of people around," he says.
For years, lots of homeowners have
complained about the private mortgage
insurance lenders require for people who
buy a home with less than a 20% down
payment. The insurance protects
mortgage investors against default on
low-down-payment loans.
The typical cost of PMI has been about
0.5% of the loan amount per year. So on
a $250,000 mortgage, the homeowner
would pay $1,250 a year.
But it isn't just that they have to buy the
coverage that bugs many homeowners.
It's the fact they often have continued to
get billed for the insurance long after they
had more than a 20% stake in their home
and their policies should have lapsed.
Mr. Hansen learned about the problems
with private mortgage insurance the hard
way. Years after buying his high-rise
apartment in the mid-1980s, he noticed a
charge for mortgage insurance on his
mortgage bill.
His mortgage servicer told him he could terminate the insurance if he paid about $4,000 to raise his equity in the condo.
But after he paid the specified amount, the servicer refused to terminate the policy. He says he was told he needed an appraisal, which he got, but still the policy wasn't canceled.
"PMI may not sound like much if it's $20 to $80 a month," Mr. Hansen says, "but think of all the mortgages out there."
Indeed, says Keith Gumbinger, vice president of HSH Associates, a mortgage-tracking service in Butler, N.J., "Millions of homeowners have been sending in millions of dollars in payments for policies that don't need to be in effect."
Under the new law, a private mortgage insurance policy is supposed to be terminated automatically when a homeowner's equity reaches 22% of the property value at the time the mortgage was executed. A homeowner can request termination earlier if he can provide proof that his equity in the home has grown to 20% of its current value.
For people with a loan funded by Fannie Mae or Freddie Mac and who have made at least one payment more than 30 days late in the past year, or at least one payment more than 60 days late in the past two years, PMI will be dropped once half the loan term has passed. For example, the PMI would stop automatically after 15 years for someone with a 30-year mortgage.
The law also requires mortgage companies to send homeowners a notice annually stating how and when insurance can or will be terminated.
But although the law will bring relief for many homeowners, not everyone will be able to enjoy the benefit. In general, only people with new mortgages -- those that are executed on or after July 29 -- are covered by the automatic-cancellation provisions.
Earlier this year, Fannie Mae and Freddie Mac vowed they would extend the coverage of the law to all mortgages they invest in, both old and new. But that leaves many homeowners in the cold. Fannie and Freddie fund 40% of all residential mortgages in the U.S., and they invest only in mortgages up to $240,000. Homeowners who have private mortgage insurance on existing mortgages that aren't funded by Fannie or Freddie must apply to their mortgage insurer to have it canceled.
Meanwhile, it may be getting easier for home buyers to avoid the cost and the hassle of private mortgage insurance. People who can't come up with a conventional 20% down payment, may be able to get a so-called piggyback mortgage.
These arrangements are typically designed with a primary loan equal to 80% of the property value, a second loan for 10% of the value and a 10% down payment. These loans can also be arranged differently, such as with a 75%-15%-10% structure.
Although not all brokers will agree to such arrangements, they are becoming increasingly popular as lenders become more comfortable with low-down-payment loans. | 
