RS C.S.H.B. 1755 75(R) BILL ANALYSIS INSURANCE C.S.H.B. 1755 By: Burnam 4-15-97 Committee Report (Substituted) BACKGROUND Private Mortgage Insurance (PMI) is usually required by mortgage lenders on any home loan where the borrower is unable to make a 20% down payment. Its purpose is to protect the lender against any deficiency should there be a foreclosure. Once the borrower's equity in the home reaches twenty percent or more, most borrowers should be able to cancel PMI. Because lenders are not required to notify homeowner when PMI becomes unnecessary, many homeowners continue to pay for the coverage for the life of the mortgage. PMI can cost homeowners between $20 and $100 a month. PURPOSE As proposed, C.S.H.B. 1755 requires lenders to annually notify borrowers about the possibility of cancelling PMI on their loans and refund any unearned premiums resulting from the cancellation of PMI to the borrower within ten (10) days of receipt of those funds. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. - Amends Article 21.50, Insurance Code, by adding Section 1B as follows: Sec. 1B. - NOTICE TO BORROWER - (a) A lender that requires a borrower to purchase guaranty insurance shall provide a specified notice to the borrower. (b) If a lender receives a refund of an unearned mortgage guaranty insurance premium, the lender shall remit the refund not later than the 10th business day after the lender receives the refund. (c) Lender has a meaning assigned under Section 1(1), Article 21.48A, Insurance Code SECTION 2 - Effective Date, January 1, 1998 SECTION 3 - Emergency Clause COMPARISON OF ORIGINAL TO SUBSTITUTE The Committee Substitute changes SECTION 1 to require the lender, rather than the insurer, to provide notice to the borrower since the lender is in direct contact with the borrower and must agree to any cancellation. The obligation to return any refund of premium is also imposed on the lender since the insurers return the premium to their insured, the lender.