U.S. ACT FAILS TO EASE PMI.

Byline: Gregory J. Wilcox Daily News Staff Writer

California homeowners now strapped with private mortgage insurance won't get automatic relief from premium payments under terms of a new federal law.

The New Homeowners Protection Act of 1998, signed recently by President Clinton, takes effect July 29, 1999. But California is one of eight states - New York, Minnesota, Hawaii, Maryland, Connecticut, Missouri and Texas are the others - that already have laws dealing with private mortgage insurance.

Generally, if a state's laws are tougher than the federal statute, they will remain in force. If not, the states have two years to meet or exceed the federal law. Although mortgage industry officials in California are still sorting out the new federal rules, they believe it'll have little to no impact on state borrowers.

``We're still trying to digest what the federal law means,'' said Mike Knudsen, vice president for government relations at the California Mortgage Bankers Association.

Private mortgage insurance is usually required by lenders if a borrower makes less than a 20 percent down payment on a home. PMI protects the lender against short-term losses if a homeowner defaults on the mortgage.

Mortgage industry officials say that only about 20 percent of the loans now in force have PMI. Still, the U.S. Senate Banking Committee estimates that the premiums range between $20 and $100 a month, so homeowners could realize up to $1,200 a year in savings if they can get their PMI canceled.

Premiums are based on a variety of factors, including the amount of a loan and a borrower's credit history. So someone with a big mortgage could end up paying less than someone with a smaller mortgage.

Adding to homeowners' frustration is the fact that PMI is not a tax-deductible housing cost.

The federal statute says that consumers who buy a home after next July and whose loan terms call for mortgage insurance will automatically have the premium payments canceled once they pay off 22 percent of the loan, officials said.

The federal law also requires that homeowners receive a letter once a year telling them they can apply to have the payments canceled if they think 20 percent of the loan has been paid. In any case, borrowers will have to deal with their lenders on an individual basis.

California's laws are similar, though homeowners have to initially wait two years before they become eligible to seek cancellation of their PMI and 25 percent is the cutoff, not 20 percent or 22 percent.

Some area mortgage bankers wonder what all the fuss is about.

``In practice, we have for at least the last two years always had a policy of letting people remove the mortgage insurance when they built up at least 20 percent equity and lived in the property for two years,'' said Joffrey Long, president of Southwestern Mortgage Inc. in Granada Hills. ``So the bill doesn't really change anything from our perspective.''

Long thinks that the rebound in area housing prices is making private mortgage insurance more of an exception than the rule these days.

``Eighty percent of our loans don't require PMI even at 95 percent loan to value. Most people are not opting for PMI to begin with.''

IN A NUTSHELL 

Here's the basics of California's rules governing private mortgage insurance, according to the California Mortgage Bankers Association:

Homeowners with PMI can apply to have it canceled two years after taking out a loan.

Beginning in the second year, homeowners receive annual notices telling them they can apply to have the premium canceled if they think their loan amount has reached 75 percent of current fair market value of the home.

To determine whether their loan has fallen below that 75 percent level, the homeowner must pay for a professional appraisal.

An automatic cancellation provision that took effect in January is triggered when the amount of the loan is equal to or less than 75 percent of the amount of the purchase price.

- Gregory J. Wilcox

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BOX: IN A NUTSHELL (see text)