In this episode of The Subservicing Scene, Mignonne Davis and Jen Hughes from Richey May’s Subservicing Oversight team break down an area that frequently raises borrower questions and requires careful operational controls: Private Mortgage Insurance (PMI) removal.
PMI can be removed in one of two ways: automatic termination or customer-requested cancellation. While the rules may seem straightforward, servicers must apply them consistently and document each step to stay compliant.
Automatic PMI removal occurs once the loan balance reaches 78% of the property’s original value, provided the loan is current. Because this calculation is based on the original value (not the home’s current market value), it can typically be handled through systematic servicing platform processes. Even so, compliance and internal audit teams should regularly test automatic terminations to ensure those systems are working correctly.
Customer-requested PMI removal gives homeowners the option to request cancellation once they reach 20% equity, usually determined through an appraisal or broker price opinion. Servicers must outline clear policies and procedures for handling these requests, including requirements for documentation, review of payment history, valuation standards, and the timing of responses.
Whether initiated automatically or by the customer, PMI removal remains a high-visibility process where errors can lead to regulatory scrutiny or borrower frustration. Strong controls, along with frequent testing, are essential.
Key Takeaways
- Automatic PMI removal occurs at 78% LTV based on the original property value and requires the loan to be current.
- Customer-requested removal may occur once the borrower reaches 20% equity, typically verified through an appraisal or BPO.
- Servicers must maintain clear, documented policies and procedures for both auto and customer-requested PMI terminations.
- Compliance and Internal Audit should regularly test both processes to ensure alignment with CFPB guidance and internal standards.
- Strong PMI removal controls help protect borrowers, reduce operational risk, and support a more consistent servicing experience.
Watch Episode 6: Private Mortgage Insurance Removal Requirements:
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