Homeowners Protection Act (HPA) and Mortgage Insurance (MI)

Updated 2026-05-17

Mortgage Insurance (MI) is a policy that protects the lender (or investor) against losses that may result from a borrower defaulting on their mortgage loan. It reduces the risk for lenders, making them more willing to approve loans with lower down payments. MI is typically required for conventional loans when the borrower's down payment is less than 20% of the home's purchase price, resulting in a VA-Approved Credit Underwriter and Underwriting Standards (LTV) greater than 80%. The requirement for mortgage insurance can significantly impact a borrower's monthly housing costs.

Mortgage Loan Originators (MLOs) must explain the type, cost, and duration of mortgage insurance or guarantee fees to borrowers, as these can significantly impact the total cost of the loan.

Types of Mortgage Insurance and Related Fees

MI can be paid by the borrower in various forms, such as monthly premiums or a single upfront premium. Different loan types have specific requirements:

• Private Mortgage Insurance (PMI):

  • Applies to conventional loans when the LTV exceeds 80%.
  • Paid by the borrower, typically as monthly premiums.
  • Can often be canceled once the borrower reaches sufficient equity in their home, as governed by the Homeowners Protection Act (HPA).
  • For the Government Sponsored Enterprise (GSE) program, standard mortgage insurance coverage is required, and custom mortgage insurance is also eligible.

• FHA Mortgage Insurance Premium (MIP):

  • Required for all FHA Loans (or Federal Housing Administration (FHA) loans), regardless of down payment amount or LTV.
  • Includes an upfront premium and annual premiums.

• Government Guarantees (replacing traditional MI): Some government-backed loans do not require traditional mortgage insurance but instead feature a government guarantee that serves a similar purpose in offsetting risk and cost.

  • VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) / VA Funding Fee:

    • Loans guaranteed by the Department of Veterans Affairs (VA) for eligible veterans and service members.
    • While not technically mortgage insurance, VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC)s (including VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC)s) require a funding fee (unless exempt) which serves a similar purpose in offsetting the cost to taxpayers.
    • A key advantage of VA loans is that they typically do not require traditional mortgage insurance coverage.

  • Mortgage Guarantee (USDA/RD):

    • Loans guaranteed by the United States Department of Agriculture (USDA)/Rural Development (USDA) for eligible borrowers in rural areas, such as those under the Single Family Housing Guaranteed Loan Program (SFHGLP).
    • This guarantee protects the lender and enables 100% LTV financing without traditional MI.

Homeowners Protection Act (HPA) of 1998

The Homeowners Protection Act (HPA) of 1998, often referred to as the "PMI Cancellation Act," is a federal law that provides homeowners with the right to cancel private mortgage insurance (PMI) once they have accumulated sufficient equity in their homes.

The HPA establishes clear rules for when PMI must be automatically terminated and when a borrower can request its cancellation. It applies to residential mortgage transactions for single-family primary residences but does not apply to FHA or VA loans, which have their own mortgage insurance rules.

Key provisions of the HPA include:

• Borrower-Requested Cancellation: A borrower can request cancellation of PMI when the principal balance of the mortgage reaches 80% of the original value of the property, provided they have a good payment history and meet other lender requirements.
• Automatic Termination: PMI must be automatically terminated when the principal balance of the mortgage reaches 78% of the original value of the property, based on the original amortization schedule, regardless of the borrower's payment history.
• Final Termination: PMI must be terminated by the midpoint of the loan's amortization period, even if the 78% LTV has not been reached.
• Disclosure Requirements: Lenders and servicers must provide borrowers with annual disclosures regarding their PMI cancellation rights.

Fannie Mae Requirements

Government Sponsored Enterprise (GSE) maintains specific requirements for mortgage insurance on loans it purchases. These requirements include a list of approved mortgage insurers, each assigned a unique MISMO Data Standards and Uniform Loan Delivery Dataset (ULDD) MI Code.

Mortgage insurance may not be required under specific conditions:

• Original LTV 80% or less: If the original LTV ratio is 80% or less, MI is generally not required (ULDD MI Code 95).
• Fannie Mae to Fannie Mae Refinance: Certain Fannie Mae to Fannie Mae Refinance loans may be eligible for no MI even if the LTV is higher than 80% (ULDD MI Code 95).
• Current LTV 80% or less: If the current LTV ratio (determined after origination) is 80% or less, MI may not be required (ULDD MI Code 97). However, as of July 2025, MI Code 97 is restricted to Negotiated (Bulk) Transactions and is no longer allowed for Lender Channel/Flow Deliveries.

For a detailed list of approved insurers and specific codes, refer to Fannie Mae Mortgage Insurance Requirements.

References

1. Guide to Joint VA Loans — veteransunited.com