How to order, activate or cancel mortgage insurance
Whether you're a mortgage industry newbie or a seasoned veteran, it's always a good idea to brush up on the basics of ordering, activating and cancelling mortgage insurance.
Ordering mortgage insurance
Generally, the lender orders MI while the loan is being underwritten. The loan originator consults with the borrowers to determine which loan product best meets their needs and then determines the cost of MI based on the borrowers' credit scores, the size of their down payment, type of mortgage and amount of insurance coverage.
The investor typically determines the amount of MI coverage required for each specific loan product. Since Fannie Mae and Freddie Mac are the most prominent investors in the marketplace today, they set the standard minimum coverage requirements for the industry. Consult with your investors to determine the appropriate amount of coverage to order. See coverage requirements.
Activating mortgage insurance
After approving an application for mortgage insurance, the insurer issues to the lender a document called a Commitment/Certificate, whose purpose is twofold:
- Before the loan is closed, the document serves as a commitment from the mortgage insurer to insure the loan. Generally, the Commitment/Certificate is effective for 120 days from the date of approval. The lender has not yet activated insurance coverage, and it is not in effect at this time
- Once the loan is closed, and the lender has paid any premium and notified MGIC to activate insurance coverage, the document serves as the insurance certificate and extends coverage to the loan
Cancelling mortgage insurance
Mortgage lenders/investors typically will permit the cancellation of private mortgage insurance when the homeowner builds up enough equity in the home.
The Homeowners Protection Act of 1998 (HPA) covers single-family primary residences whose sales were closed on or after July 29, 1999. HPA provides for borrower-requested cancellation and lender-required cancellation based on the property’s original value.
Borrowers may also be able to cancel mortgage insurance based on their property’s current value.