Clinton Signs Homeowners Bill
WASHINGTON (AP) _ President Clinton has signed into law legislation that eliminates private mortgage insurance once borrowers attain a little more than one-fifth equity in their homes.
``Far too many homeowners continue to pay for mortgage insurance long after they have built enough equity so that the lender has little risk of loss,″ Clinton said Wednesday.
Private mortgage insurance or PMI is usually required by lenders if a purchaser makes less than 20 percent down payment on a home. It protects the lender against losses if the homeowner defaults on the mortgage.
The new Homeowners Protection Act of 1998 automatically cancels private mortgage insurance for homeowners when their accrued equity equals 22 percent of either the original purchase price or the appraised value of the home at closing, whichever is lower.
The cancellation provisions will affect as many as one out of five homeowners with private mortgage insurance, according to Senate Banking Committee aides. Since the PMI premiums vary between $20 and $100 a month, homeowners could realized up to $1,200 a year in savings, they said.
``This is a big win for consumers who will no longer have to pay hundreds of dollars a year for phantom mortgage insurance,″ said Sen. Alfonse D’Amato, chairman of the Senate Banking Committee and a sponsor of the bill.
PMI is not related to credit life insurance, which pays off a mortgage on behalf of a homeowner’s family in the event of the homeowner’s death.