By Bill Pan | ntd.com

Federal Housing Finance Agency Director Bill Pulte has directed Fannie Mae to change its rules so mortgage servicers can notify homeowners who may qualify to cancel private mortgage insurance (PMI) based on their home’s current market value, potentially lowering their monthly payments.

PMI is generally required on conventional mortgages when borrowers put down less than 20 percent. While it protects lenders from losses if a borrower defaults, homeowners typically pay the premiums as part of their monthly mortgage costs.

Under Fannie Mae’s current rules, borrowers can request PMI cancellation if they meet certain loan-to-value and other requirements, but servicers are prohibited from proactively contacting them about cancellation based on current home values. Freddie Mac’s rules allow such outreach.

Pulte said aligning Fannie Mae’s rules with Freddie Mac’s could help homeowners who have gained enough equity through rising home values or mortgage payments realize they may be eligible to remove PMI.

The change would not automatically cancel PMI. Borrowers would still need to meet eligibility requirements, including an acceptable payment history, minimum loan seasoning, and sufficient equity based on a property valuation.

The proposed change comes as high borrowing costs continue to pressure housing affordability. The average 30-year fixed mortgage rate recently reached 6.97 percent, while the 10-year Treasury yield has approached 5 percent. The Federal Reserve’s benchmark rate is currently 3.75–4 percent.

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