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Question: We service loans that have Private Mortgage Insurance and have a manual system in place to track termination and cancellation dates. We use a spreadsheet to track these dates as our system does not have the capability to do this for us. Given we have a manual system to track PMI, are we required to reflect the termination date within the annual escrow statement for the computation year the PMI terminates?
Answer: The short answer is no. The CFPB addressed this issue in their Summer 2021 Supervisory Highlights, see page 31. PMI, when required, automatically terminates when the principal balance of the loan reaches 78% of the original value of the property based on the amortization schedule, provided the borrower is not past due as of this date. RESPA requires servicers to estimate the disbursement amounts of escrow items “if the servicer knows the charge for an escrow item in the next computation year.” Since your system does not maintain relevant information to determine the termination date, it is not required to reflect the termination of PMI within the projection.
If, on the other hand, a bank’s system DID retain all relevant information to determine the termination date, the bank would be considered to have knowledge. As such, when PMI will not be collected from the borrower for the full twelve months of the annual computation year and will terminate before the end of the escrow computation year, the projection must include PMI only for those months where PMI will actually be charged and collected.
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