At a hearing Tuesday, industry groups asked Sen. Alfonse M. D'Amato to back off his bill requiring automatic cancellation of mortgage insurance once homeowners have accumulated enough equity to protect the lender from default.

Representing America's Community Bankers, Frank J. Sutkowski asked the Senate Banking Committee chairman to give the private sector a chance to devise its own solution.

Mr. Sutkowski, senior executive vice president and chief lending officer at Liberty Bank, Middletown, Conn., noted that Fannie Mae, formally the Federal National Mortgage Association, will soon require mortgage servicers to inform consumers about their rights and automatically cancel mortgage insurance at the midpoint of the loan.

But Sen. D'Amato noted he wants to pass this bill quickly. "I am committed to making sure unnecessary mortgage insurance premiums are a thing of the past," he said.

Sen. D'Amato introduced S 318 on Feb. 13 and held the first hearing on the legislation Tuesday. Beyond amending the Truth-in-Lending Act to require automatic cancellation, the bill would require lenders to notify homeowners of cancellation rights up front and in periodic account statements. Existing mortgages are covered by the bill.

Initially industry leaders endorsed the bill, but on Tuesday Ron J. McCord, president of American Mortgage and Investment Co. representing the Mortgage Bankers Association of America, said it could "impose unnecessary costs and burdens on mortgage lenders and servicers."

William H. Lacy, chairman and chief executive of Mortgage Guaranty Insurance Corp. representing the Mortgage Insurance Companies of America, supported informing consumers of cancellation rights when the loan is made and subsequently on a regular basis. But he cautioned against adopting strict rules that would "not work in a rapidly changing marketplace."

Some congressmen, including Rep. James V. Hansen, R-Utah, who is sponsoring a similar bill in the House, expressed reservations about automatic cancellation. Lenders need flexibility to deal with delinquent borrowers, and automatic cancellation could result in higher premium rates, he told Sen. D'Amato.

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