(a) Definitions. For purposes of this section—
(1) the term “borrower paid mortgage insurance”
means private mortgage insurance that is required in connection with
a residential mortgage transaction, payments for which are made by
the borrower;
(2) the
term “lender paid mortgage insurance” means private mortgage insurance
that is required in connection with a residential mortgage transaction,
payments for which are made by a person other than the borrower; and
(3) the term “loan commitment”
means a prospective mortgagee’s written confirmation of its approval,
including any applicable closing conditions, of the application of
a prospective mortgagor for a residential mortgage loan.
(b) Exclusion. Sections
3 through 5 do not apply in the case of lender paid mortgage insurance.
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(c) Notices to mortgagor. In the case of lender paid mortgage insurance that is required in
connection with a residential mortgage transaction—
(1) not later than the date on which a
loan commitment is made for the residential mortgage transaction,
the prospective mortgagee shall provide to the prospective mortgagor
a written notice—
(A) that lender paid mortgage insurance
differs from borrower paid mortgage insurance, in that lender paid
mortgage insurance may not be canceled by the mortgagor, while borrower
paid mortgage insurance could be cancelable by the mortgagor in accordance
with section 3(a) of this Act, and could automatically terminate on
the termination date in accordance with section 3(b) of this Act;
(B) that lender paid
mortgage insurance—
(i) usually results in a residential mortgage
having a higher interest rate than it would in the case of borrower
paid mortgage insurance; and
(ii) terminates only when the residential mortgage is refinanced
(under the meaning given such term in the regulations issued by the
Board of Governors of the Federal Reserve System to carry out the
Truth in Lending Act (15 U.S.C. 1601 et seq.)), paid off, or otherwise
terminated; and
(C) that lender paid mortgage insurance
and borrower paid mortgage insurance both have benefits and disadvantages,
including a generic analysis of the differing costs and benefits of
a residential mortgage in the case lender paid mortgage insurance
versus borrower paid mortgage insurance over a 10-year period, assuming
prevailing interest and property appreciation rates;
(D) that lender paid mortgage insurance
may be tax-deductible for purposes of Federal income taxes, if the
mortgagor itemizes expenses for that purpose; and
(2) not
later than 30 days after the termination date that would apply in
the case of borrower paid mortgage insurance, the servicer shall provide
to the mortgagor a written notice indicating that the mortgagor may
wish to review financing options that could eliminate the requirement
for private mortgage insurance in connection with the residential
mortgage transaction.
(d) Standard forms. The servicer of a residential
mortgage transaction may develop and use a standardized form or forms
for the provision of notices to the mortgagor, as required under subsection
(c).
[12
USC 4905. As amended by act of Dec. 27, 2000 (114 Stat. 2957, 2959).]
