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Does the bank need to provide the annual private mortgage insurance (PMI) disclosure for loans where the PMI is not paid through an escrow account?

During my review of the Homeowners Protection Act, I found that the bank is not providing the annual private mortgage insurance (PMI) disclosure for loans where the PMI is not paid through an escrow account. Is this procedure correct?

No. When PMI is required in connection with a residential mortgage transaction, lenders and servicers must provide borrowers an annual written statement disclosing the borrower’s right to PMI cancellation or termination and an address and telephone number that they may use to contact the servicer to determine whether they may cancel PMI. (12 USC §4903(a)(3)). This requirement applies whether or not the bank escrows the premiums, because whether premium payments are paid from an escrow account has no bearing on the application of the PMI requirements.

It may be that your bank is not escrowing for PMI because the borrower paid the full annual premium up-front. However, even if the borrower pays in advance, that borrower still has the right to request cancellation (or to automatic cancellation) and obtain a refund of the unused premium. The annual notice is intended to remind borrowers that even if they paid in advance, they may still be entitled to cancel. (April 2020)

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