MORTGAGE INSURANCE BILL CLEARS HOUSE.

Byline: Jim Abrams Associated Press 

The House approved a bill Tuesday to automatically cancel private mortgage insurance when it is no longer needed, a move that could save many homeowners hundreds of dollars a year.

The bill, passed by voice, provides for the cancellation of private mortgage insurance when a homeowner has 22 percent equity in his or her home. A homeowner with a good payment record whose home has not depreciated below the purchase price can ask that the insurance be canceled upon reaching 20 percent of equity.

Private mortgage insurance is required by lenders for borrowers who make down payments of less than 20 percent of the home price. The purpose is to protect the lender from losses if the borrower defaults on a low-down payment loan.

But consumers have complained that many lenders continue to charge private mortgage insurance premiums after homeowners have enough equity in their homes so there is little or no risk of default.

The chief sponsor of the legislation, Rep. James Hansen, R-Utah, said he became interested in the issue after he bought a condominium near Washington and found that his lender wouldn't stop the insurance charge, even after he paid $1,200 for an appraisal of his property. He said he later learned that many people were having the same problem and ``many people have paid it the rest of their lives.''

Rep. John LaFalce, D-N.Y., said between 250,000 and 400,000 families nationwide are making unnecessary payments. ``Many homeowners are never even notified that they can discontinue that insurance and just keep paying and paying and paying and it adds up to thousands of dollars.''

The average cost of the insurance is between $300 and $900 a year, the House Banking Committee estimates.

No federal law makes lenders tell borrowers of their rights to cancel the insurance. The bill requires lenders to disclose information at the time of settlement and to inform consumers of their rights to terminate.

The bill was praised by the Consumers Union, which called it a ``good deed for consumers,'' and the Mortgage Insurance Companies of America, which said that it ``assures consumers that they can take advantage of the benefits of mortgage insurance in buying a home knowing that lenders will cancel it when it is no longer needed.''

The bill now returns to the Senate, which has approved a slightly different version. Sen. Alfonse D'Amato, R-N.Y., who crafted the Senate bill, promised that the Senate would pass the final bill and send it to President Clinton as early as this week.

``This really is a great win,'' D'Amato said. ``People have been paying real money for phantom protection. That's an outrage.''