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.