Fannie Mae last week said it had changed its private mortgage insurance guidelines to make them consistent with the Homeowners Protection Act, which takes effect next month.

The new law requires that single-family, principal-residence mortgages originated on or after July 29 allow a borrower's mortgage insurance to end automatically when the loan balance reaches 78% of the original property value, if loan payments are current. Fannie Mae's revised guidelines comply with this provision.

Fannie also announced a guideline that would apply retroactively, requiring automatic termination of loan insurance when the borrower reaches the midpoint of the amortization period.

"This will apply to the 11 million loans on our books. There are about 2.5 million that currently have insurance that will retroactively be canceled," said Robert J. Engelstad, Fannie's senior vice president for credit policy. "When mortgage insurance is canceled, the mortgage insurance company won't give the borrower any money back, but the servicer might have accumulated some money in an escrow account that would go back to the borrower."

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