While the Homeowner’s Protection Act (“HPA”; 12 USCA §§ 4901 – 4910) primarily governs the termination of private mortgage insurance (“PMI”) for certain transactions, special exemptions are provided to “protected State law[s]” (see Ibid. §§ 4901 & 4908[a]), among which is N.Y. Ins. Law § 6503. Under New York law, in certain circumstances, PMI must be terminated sooner than when it would normally be required to be terminated under the HPA (e.g., a purchase transaction where the sales price of the property is lower than the appraised value). Due to this, our Federal HPA disclosures contain a footnote indicating such (see https://compliance.docutech.com/2015/11/17/document-changes-homeowners-protection-act-disclosures-used-in-new-york/ for details).
To streamline the notice (as well as to fix a typographical error), we will change our New York notice on Cx29, Cx862, Cx4668, Cx14292, Cx14293, and Cx14294 to state the following:
“* Please Note: New York state law (N.Y. Ins. Code § 6503) allows for the termination of PMI once certain thresholds are met, based on the original appraised value of the subject property. It is possible, therefore, for automatic termination of PMI coverage to occur before the 78% value referenced (which is Federally-mandated). Please be aware that according to our calculations at the time of closing, PMI coverage for your loan is expected to automatically terminate under New York law before it will automatically terminate under Federal law.”
Also, we have made additional edits to these documents, to achieve more consistency. Besides grammatical and punctuational changes, we are adding the definitions of “original value” for refinances and “servicer” from the HPA (see Ibid. § 4901). Although these are not specifically required by law to be disclosed, the definitions help the borrower in understanding these terms.
New York Disclosures
Cx3588, Cx3710, and Cx5099 are all required by N.Y. Comp. Codes R. & Regs. tit. 3, §§ 38.4 through 38.6 and are based on the model forms published by the New York Department of Financial Services on their website (https://www.dfs.ny.gov/apps_and_licensing/mortgage_companies/foreclosure_related_forms). Administrative law and/or the instructions to these forms require that they include “a statement that private mortgage insurance will be required (if applicable) and the conditions under which such insurance would no longer be required” (Ibid. §§ 38.4[a][x] & 38.6[a][viii]).
In 1999, the New York Banking Department issued an industry letter recommending that the following notice be added to their model disclosures, due to the recent passage of the HPA:
“You may terminate your mortgage loan guaranty insurance when the unpaid principal amount of the real estate loan represents 75% or less of the real estate’s appraised value at the time the loan was made. However, if your mortgage is on a single family dwelling that is your primary residence, then your loan may be eligible under federal law for earlier termination. A checkmark in the box below denotes whether your loan insurance may be terminated sooner. If so, you will be provided prior to closing with additional information explaining how the federal law may affect your mortgage insurance.”
The Department added that “inclusion of this language is strictly optional but, if you do use the suggested language, without alteration, you will be presumed to be in compliance with section 38.4(a)(1)(x) of the General Regulations of the Banking Board” (https://www.dfs.ny.gov/legal/industry/mb990614.htm).
We included this notice (verbatim) in 2011 to the three referenced forms, since “safe harbor” protection is extended when it is used. After reviewing this language against the provisions of N.Y. Ins. Law § 6503(f), which requires PMI to be terminated at less than 60% combined loan-to-value for junior lien loans, we will be modifying this sample notice by replacing the clause “represents 75% or less” with “combined with all existing mortgage loan amounts at the time the loan is made, represents less than 60%”. While this is a deviation from the sample notice provided by the Banking Department twenty years ago, we believe this will provide more accurate information to junior lien borrowers.
These changes will take effect on September 20, 2019. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
DRs 298480 & 298845