Complaint Review: Bank of America Home Loans - Internet Internet

My wife and I are in the same situation.  We have a mortgage through Bank of America for a home purchased in 2006, which has fallen in value.  We have made extra payments against the principal so that the principal owed vs. the original property value is approximately 72%.  I have investigated removing PMI.  I've reached the conclusion that Bank of America is not legally required to removed our PMI for reasons that I will explain below.

MochaG (Commenter 1) is correct regarding a Federal law (the Homeowners Protection Act 1998) that sets forth requirements for when a lender must terminate the requirement to pay PMI.   There is an automatic termination provision and a borrower requested termination provision based on the original property value.  For a mortgage obtained when purchasing a house, original property value means the lesser of the purchase price or the appraised value of the house at the time when the loan was issued.  There is a decent summary of the law with respect to PMI at: http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf 

Generally, with some exceptions (e.g., borrower not current on payments), a lender must automatically terminate the requirement to pay PMI on the date when the loan is scheduled to reach 78% of the original value of the house based on the original amortization schedule for fixed loans.  In other words, you look at the date that the loan, based on making the minimum payments, was scheduled to reach 78% of the original value of the house to determine the date that the lender must automatically stop requiring the payment of PMI. The automatic termination provision of the law effectively punishes people who make extra principal payments on their mortgages because their mortgages will hit the 78% mark well before the date that would occur based on the amortization schedule. 

A borrower can also request that the lender remove the required PMI payments.  The borrower can make this request after the earlier of the following dates: 1) the date when the actual amount owed on the loan is 80% of the original property value; or 2) the date when the loan is scheduled to reach 80% of the original property value based on the original amortization schedule (for a fixed loan).   The Federal law then requires that the lender remove the requirement to pay PMI if four conditions are satisfied:  1) the borrower submits a written cancellation request; 2) the borrower has a good payment history (usually not more than thirty days late on a payment in the last 12 months or sixty days late in the last two years); 3) the borrower is current on payments; and 4) the borrower satisfies any requirement by the mortgage holder of: (i) evidence of a type established in advance that the value of the property has not declined below the original value; and (ii) certification that the borrower's equity in the property is not subject to a subordinate lien.

It is the fourth requirement that is the problem with the Federal Homeowners "Protection" law for borrower requested removal of PMI.  If the home value has fallen below its original value, then the lender is not required to remove PMI.  The lender is only required to remove PMI if the home value has remained the same, or is greater than, the original value.  Further, if you review your mortgage documents, you will probably find a requirement that removal of PMI by borrower request requires you to obtain, at your cost, the evidence necessary to satisfy the lender that the value of the property has not fallen below the original value (the evidence is usually a certified or bank approved appraisal).  In short, if your house has fallen in value since you purchased it, the lender has discretion whether or not to eliminate PMI if you ask for it to be removed, even though you may owe less than 80% of the original property value, or even less than 80% of the current appraised value.

It appears that some States have requirements, in addition to the Federal law, for removal of PMI. For example, it appears that California may require removal of PMI if the amount owed vs. original property value is 75% or less, regardless of current value of the house.  New York may have a similar requirement.  I've not investigated if this is correct since I don't live in either State.  Also, it appears that sometimes investors in mortgages will allow PMI to be removed even if the property value has fallen.

Given there is likely no Federal legal requirement for Bank of America to remove your PMI since you state that your house has fallen in value (unless you find a State law to help you), here are some potential options:

1.  Refinance once you have 20% equity in the house based on a current appraisal.  This should remove PMI with the downside being that origination and other fees must usually be paid to refinance. 

2.  "Nicely" ask Bank of America to drop PMI.  If you have twenty percent equity based on a current appraisal, let them know that you will refinance with another mortgage company if they won't drop PMI.  Not sure if this will work since I am not sure if Bank of America really cares about keeping business.  However, it is the only leverage that is practically available to try to get them to do the "right" thing, which is different than what is legally required.  (I guess you could hire a lawyer to threaten them but you will pay for it - financially and emotionally.)  

3.  Wait until home prices recover so that an appraisal comes in at or above the original purchase value, then ask for PMI to be removed.  I am not expecting this to happen anytime in the near future for our house.  It is more likely the automatic termination date will occur before this happens.

4.  Pay off the mortgage early.  No mortgage, no PMI. 

5.  Review your mortgage documents to see if the lender contractually provided a less stringent requirement to remove PMI than the requirements imposed upon them by Federal law.  It is unlikely as all of the mortgages that I have obtained track the Federal law requirements.

6.  Check the laws in your State to see if your State provides more protection than Federal law regarding removal of PMI.

7.  Improve the property so that it will appraise for greater than the original value and then ask for PMI to be removed.
 

PMI POEM

Oil prices are too high
Won't delete the PMI
Banker goons are in control
Want your money and your soul
Politicians do not care
Greedy goofballs, unaware
Song is coming very soon
Expose the greedy banker goon
Time for breakfast, gotta go
Nice and sunny, no more snow.

End.

Anyone can 'Google' the following videos and watch them on the web in order to see that the bankers control the U.S. government, Wall Street, and even the price of oil-

1) INDYMAC BOYS GET SWEETHEART DEAL

2) WHO CONTROLS THE UNITED STATES ECONOMY BY MAJORITY 2010

3) FRONTLINE: THE WARNING

4) FRONTLINE: INSIDE THE MELTDOWN

5) FULL SHOW: HOW BIG BANKS ARE REWRITING THE RULES OF OUR ECONOMY

6) DID SPECULATION FUEL OIL PRICE SWINGS

Thank You

WELCOME TO AMERICA- OUR GOVERNMENT IS BEING CONTROLLED BY A CARTEL OF CORRUPT, GREEDY, AND INEPT BANKERS WHO ALSO CONTROL WALL STREET AND EVEN THE PRICE OF OIL

That stupid claim about 78% works only in NY is wrong. You can search on Google for "Homeowner Protection Act" and there should be a link to the PDF file for the act. Also, you could read http://findrealaustin.com/real-tips/getting-rid-of-pmi.htm/ at the bottom of the page to find out what you should do in order to follow up and get rid of your PMI. Good luck.