Court can help get rid of mortgage insurance


September 27, 1998

Dear Mr. Azrael:

My husband and I seek your help in removing private mortgage insurance (PMI) from our mortgage. Our original loan required a 12-month, delinquency-free history to remove PMI. However, our loan has been recently transferred to a California-based company which requires a 24-month delinquency-free history to remove the PMI. Do we have any recourse, and if so, what are our remedies and where can we enforce them?

In June 1997, my husband and I bought a house in Baltimore. Because this house was in an Empowerment Zone, we were able to receive a below-market loan through Signet Mortgage Corp. We paid a down payment of approximately 15 percent, and we were charged PMI. During the next year, the loan was transferred from Signet to First Union Mortgage Corp. In April 1998, we inquired about removing the PMI. First Union informed us in writing that we were required to have a 12-month delinquency-free history.

In May 1998, we prepaid the mortgage in order to put our equity greater than 20 percent of the loan's original value. In addition, because we bought our house at below-market rates, our loan-to-value is less than 80 percent. Shortly after we made this payment, First Union transferred our loan to Neighborhood Housing Services, located in California, and they now inform us that we need to have a 24-month delinquency-free payment history before they will remove our PMI.

We have written NHS to send them a copy of the original letter from First Union and to notify them that they are changing the contractual terms without our consent. To date, we have not heard from NHS.

We would like to know what action we might be able to take under Maryland common or statutory law. We would also like to know how we might be able to enforce any remedy we might have.

Joanne Sun


Dear Ms. Sun:

I spoke to a First Union representative who confirmed that the cancellation of your mortgage insurance premium depends on the "policy" of the current investor. If the current investor in California requires a delinquency-free period longer than 12 months, then -- according to First Union -- you have no contractual right to complain.

Standard Fannie Mae guidelines for private mortgage insurance cancellation require that two years pass since the origination date of the last mortgage and no more than one delinquency during the 12-month period immediately preceding the date on which written request for mortgage insurance cancellation is received by the servicer. It is unclear whether the California investor follows this Fannie Mae guideline, or some guideline of its own.

It does appear unfair that you must continue to pay mortgage insurance for another 12 months simply because First Union sold your loan to another investor. You have a right to file a suit in the Baltimore City District Court to have a judge determine whether you have a contractual right to terminate mortgage insurance after 12 months, as you were led to believe.

If you wish to pursue these rights, I suggest you send a certified letter to the current servicer of your mortgage requesting cancellation of mortgage insurance. If they refuse, you can then file suit for a return of your mortgage insurance premiums and other relief in the District Court of Maryland in Baltimore City.

Pub Date: 9/27/98

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