Mr. Chairman, thank you for holding this hearing on Private Mortgage Insurance and, S.318, the Homeowners Protection Act of 1997. Mortgage insurance is an important issue that every homeowner and potential homeowner needs to be informed about.
Private mortgage insurance (PMI) enables many consumers, who do not have a large enough down payment, to purchase a home. PMI is required by most lenders whenever a borrower obtains a loan with a down payment of less than 20 percent. As we know, the insurance protects the lender against default, while the homeowner pays the premium. At the same time, it is expensive and, in many cases I am afraid, the homeowner pays far longer than required.
Most home buyers would elect not to pay this insurance fee if they had a 20 percent down payment. But, when a 20 percent down payment is out of the question -- which is often the case with first time home purchasers -- paying the fee is the only choice. If homeowners knew they had the option to cancel PMI when they have accumulated sufficient equity in their homes to protect the lender's investment, I believe most would choose to cancel.
Many homeowners do not realize they have this option. Lenders are not required to disclose this information during the closing process, and most do not. As a result, thousands of Americans continue to pay insurance premiums well after they need to.
According to a recent newspaper report, a Dallas-based loan portfolio analyst said he believes that as much as one-fifth of some lenders' mortgage portfolios consist of PMI-insured loans with equities that are greater than 20 percent of current market resale value. In addition, the president of a mortgage investment company said in an interview that in a recent analysis of a portfolio, consisting of 20,000 loans, PMI was still being collected on about 4,000 of the loans.
Lack of information is not the only problem. Many homeowners who are aware of the law and who try to cancel their insurance find it a difficult and sometimes frustrating process. In fact, in my home state of Nevada, I have had constituents contact me asking for help in canceling their insurance policy because the lenders have not followed through with their request. In some cases, the lender will try to discourage the homeowner from canceling the policy by requiring an appraisal of the property which must be paid for by the homeowner.
Our bill would change this unfair practice that affects many thousands of homeowners in the country. This legislation would give both current and future homeowners the right to cancel private mortgage insurance once the 20 percent threshold has been reached. The legislation would require written notification to homeowners at closing and at least once a year. I will be interested to hear from the witnesses this morning and learn what your views are on an automatic cancellation of the private mortgage insurance once the 20 percent threshold has been reached. This is another approach that deserves consideration.
Mr. Chairman, I am pleased to be a cosponsor of this important legislation and believe it is a positive and needed step to protect consumers. I urge the Committee to pass it quickly, and let it become law this year. This is not an overly controversial issue and should not hibernate for years before we take corrective action.
Mr. Chairman, this is an important hearing, and I look forward to hearing from our
witnesses this morning.
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