The Senate Banking Committee is expected to approve on Thursday legislation that would require lenders to automatically cancel private mortgage insurance when a borrower's equity in a home reaches 22%.

Even though most loans currently allow borrowers to cancel insurance, lawmakers complain that consumers are unaware that the coverage can be terminated. Congressional staffers estimate that consumers can save $300 to $900 a year in premiums by dropping mortgage insurance.

Also, borrowers would be allowed to demand that mortgage insurance be terminated when their equity reaches 20% as long as they have not been more than one month late on any mortgage payment in the preceding 12 months or more than two months late on any payment in the preceding two years. The PMI legislation has been the subject of negotiations between Senate Banking Committee Chairman Alfonse M. D'Amato and Sen. Lauch Faircloth for seven months.

The compromise they reached differs little from Sen. D'Amato's original version, which would have required automatic cancellation at 20% equity.

But Sen. Faircloth insisted he won some important concessions. In addition to the slightly higher equity requirement for automatic termination, the new plan also would preempt a handful of state laws requiring that borrowers be allowed to drop coverage.

The bill also would require lenders to make annual disclosures showing how much a borrower would have to pay on the loan to avoid mortgage insurance.

"It's a good bill and serves the industry and consumers well," Sen. Faircloth said in an interview Tuesday. "Companies can follow one national set of rules and regulations, and homeowners have the right to cancel insurance they don't need."

The Banking Committee is expected to pass the legislation easily and industry trade groups gave tentative endorsements to the package.

"It looks like a good bill to us," said a spokeswoman for the Mortgage Insurance Companies of America. "It sets a national standard that is clear and simple."

"We concur with the general outline of the bill," said Edward L. Yingling, chief lobbyist for the American Bankers Association.

However, the ABA wants the Federal Reserve Board to have rulemaking authority over insurance disclosures and cancellations. Currently, no regulator would have authority to enforce the measure, leaving disputes to the courts.

The House passed legislation in April that would automatically cancel insurance when equity reaches 25%.

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