HBA-ATS H.B. 3118 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 3118 By: Burnam Insurance 4/17/1999 Introduced BACKGROUND AND PURPOSE Private mortgage insurance (PMI) is usually required by mortgage lenders on any home loan in which the borrower is unable to make a 20 percent down payment. The purpose of the insurance is to protect the lender against any deficiency should there be a foreclosure. Once the borrower's equity in the home reaches 20 percent or more, most borrowers are able to cancel the insurance. Prior to the passage of H.B. 1755 in 1997, lenders were not required to notify a homeowner when the insurance became unnecessary. Consequently, many homeowners continued to pay for the coverage for the life of the mortgage, which cost homeowners between $20 and $100 a month. H.B. 1755 required lenders to annually notify borrowers about the possibility of canceling PMI on their loans and to refund any unearned premiums resulting from the cancellation of PMI to the borrower within 10 days of receipt of those funds. In 1998, the U.S. Congress enacted the Homeowners Protection Act of 1998. The Act authorizes homeowners to cancel PMI once they have paid off 20 percent of the house's value, but, to do so, the borrower is obligated to provide evidence (typically an appraisal) that the property has not declined in value. On the other hand, lenders are required to cancel PMI when the loan value reaches 78% or less of the original value of the home. H.B. 3118 authorizes a borrower who has been required to purchase PMI in connection with a residential mortgage transaction to cancel coverage on the earlier of two occurrences. Those occurrences are the cancellation date established under 12 U.S.C. Section 4901 et seq., if the borrower complies with that law, or the date on which the borrower submits satisfactory evidence to the lender that the principal balance of the loan is 80 percent or less of the fair market appraised value of the residential real property (property) or the appraised value of the property for ad valorem tax purposes as determined by the appropriate chief appraiser. A borrower who cancels PMI is not required to pay any amount attributable to a premium after a certain date. A lender, if it receives a refund of an unearned PMI premium paid by a borrower, must remit the refund to the borrower by the 10th business day after the lender receives the refund. In addition, the lender must provide notice to the borrower that the lender is obligated to cancel PMI if the borrower presents an appraisal that the balance of the loan is 80 percent or less of the appraised value of the home. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Transfers Section 1B, Article 21.50, Insurance Code, to Subchapter E, Chapter 21, Insurance Code, redesignates it as Article 21.50A, and amends it, as follows: ARTICLE 21.50A. PRIVATE MORTGAGE INSURANCE Sec. 1. DEFINITIONS. Defines "borrower," "lender," "private mortgage insurance," and "residential mortgage transaction." Sec. 2. RIGHTS OF BORROWERS. (a) Authorizes a borrower who has been required to purchase private mortgage insurance (PMI) in connection with a residential mortgage transaction (transaction) to cancel coverage on the earlier of two occurrences. Those occurrences are the cancellation date established under 12 U.S.C. Section 4901 et seq., if the borrower complies with that law, or the date on which the borrower submits satisfactory evidence to the lender that the principal balance of the loan is 80 percent or less of the fair market appraised value of the residential real property (property) or the appraised value of the property for ad valorem tax purposes as determined by the appropriate chief appraiser. (b) Provides that cancellation as a result of the borrower submitting satisfactory evidence to the lender is effective on the first day of the first month that begins at least five days after the date the borrower submits the satisfactory evidence to the lender. (c) Provides that a borrower who cancels PMI is not required to pay any amount attributable to a premium for insurance after the date determined under Subsection (b) of this section. (d) Requires a lender, if it receives a refund of an unearned PMI premium paid by a borrower, to remit the refund to the borrower by the 10th business day after the lender receives the refund. (e) Prohibits a lender or private mortgage insurer from charging the borrower any fee in connection with cancellation of insurance under Subsection (a). Sec. 3. NOTICE TO BORROWER. Requires a lender that requires a borrower to purchase PMI, rather than mortgage guaranty insurance, to provide annually to the borrower a copy of a written notice, set forth in this section, printed in at least 10-point bold-faced type. The title of the notice is changed as is the required content. The main changes are that a lender in Texas must cancel, rather than the borrower having the right to cancel, PMI if the borrower pays premiums for a single-family dwelling that is the borrower's primary residence and the borrower is now authorized to cease paying premiums if the borrower presents an appraisal that the balance of the loan is 80 percent or less of the appraised value of the home; and that qualification for cancellation or termination of PMI under either federal or state law, reduces the total monthly mortgage payment and authorizes the borrower to receive a refund of any unearned premiums. Makes conforming changes by deleting existing Sections 1B(b), (c), and (d). SECTION 2. Effective date: September 1, 1999. SECTION 3. Makes application of this Act prospective. SECTION 4. Emergency clause.