Freddie Mac, one of the country's largest providers of mortgages, will make canceling private mortgage insurance (PMI) easier for borrowers who hold Freddie Mac-owned mortgages.
Homeowners who put a down payment of less than 22 percent of the total value of their house must buy PMI. The insurance protects the lender if the borrower defaults on the loan.
In 1998, Congress enacted the Homeowners Protection Act, which will require lenders to automatically cancel PMI when a homeowner builds up 22 percent equity in their home for mortgages taken out after July 28, 1999. The law's provisions apply only to these new loans, but Freddie Mac's new guidelines will extend some of the benefits under that law to existing Freddie Mac-borrowers, provided the homeowner has made payments on time and the property's value has been verified.
Lenders who service current Freddie Mac mortgage-holders may opt to cancel private mortgage insurance once the borrower is halfway through the term of the mortgage. This stops being optional for lenders come Jan. 2, 2000, when they must automatically cancel the PMI halfway through a mortgage term. "We didn't want to add an extra regulation while many lenders are still working on the Y2K problem," explains Brad German, spokesperson for Freddie Mac.
Freddie Mac was chartered by Congress in 1970 to create a continuous flow of money to mortgage lenders. For more information on the new rules and Freddie Mac, you can check its Web site: http://www.freddiemac.com.
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