After hitting 80% LTV, my mortgage lender refuses to remove PMI. Any recourse?

Here's some good information:

http://www.nolo.com/legal-encyclopedia/private-mortgage-insurance-pmi-30108.html

The Act says that you can ask that your PMI be canceled when you've paid down your mortgage to 80% of the loan, if you have a good record of payment and compliance with the terms of your mortgage, you make a written request, and you show that the value of the property hasn't gone down, nor have you encumbered it with liens (such as a second mortgage). If you meet all these conditions, the lender must grant your request to cancel the PMI.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

A borrower has a good payment history if the borrower: (1) has not made a payment that was 60 days or more past due within the first 12 months of the last 2 years prior to the later of the cancellation date, or the date that the borrower requests cancellation; or (2) has not made a payment that was 30 days or more past due within the 12 months prior to the later of the cancellation date or the date that the borrower requests cancellation.

(my reading of that is that since you've had no late payments, you have a good payment history)

If they still refuse, you need a lawyer and you need one ASAP - don't put it off at all. A good residential property lawyer will know the law, will know how to remedy it, and will know how to make sure none of your money is wasted.

Paul, I've got to agree with JBarker; the fact that 12 months was mentioned in the rule does give the lender an out. They would argue that good payment history is legally defined as being over a minimum 12 month period. After all who's to say that you won't default in the 8th through 12th months? I'd say ride the storm until that first year is past and then send them a written request via certified mail (don't even trust faxes.) If they don't remove the PMI it's time to see a lawyer. Most initial consultations are free and it may be that all he'll have to do is send a scare letter. Lastly, if none of that works and the prevailing interest rates aren't too high maybe you should refi with another lender. They sound like douche bags anyway for dodging your calls. Good luck.

Here is what the Consumer Financial Protection Bureau has to say about the matter (I have added emphasis to a few key words here and there). The link is taken from the first comment on the question which was written by Moderator JohnFx,

Request PMI cancellation
The Homeowners Protection Act gives you the right to request that your lender cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. This date should have been given to you in writing on a PMI disclosure form when you received your mortgage. If you can't find the disclosure form, contact your lender.

You can also make this request earlier if you have made additional payments to reduce the principal balance of your mortgage to 80 percent of the original value of your home.

There are other important criteria you must meet if you want to cancel PMI on your loan:

• Your request must be in writing.
• You must have a good payment history and be current on your payments.
• Your lender may require you to certify that there are no junior liens (such as a second mortgage) on your home.
• Your lender can also require you to provide evidence (for example, an appraisal) that the value of your property hasn’t declined below the value of the home when you first bought it. If the value of your home has decreased, you may not be able to cancel PMI.

If you meet these requirements your servicer generally must cancel your PMI when you request it.

Automatic PMI termination
Even if you don’t ask your lender to cancel PMI, your lender still must terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. You also need to be current on your payments on the anticipated cancellation date. Otherwise, PMI will not be terminated until shortly after your payments are brought up to date.

It’s worth noting a termination request is different than a cancellation request. Your lender must terminate PMI even if the principal balance of your loan has not actually reached 78 percent of the original value of your home – for example, because the value of your home declined.

Original answer

You can request removal of the PMI as soon as your LTV ratio reaches 80% as per the amortization schedule and the lender must grant the request provided your account being in good standing, i.e. you have not missed payments or made late payments and your LTV actually is at 80% as per the amortization schedule (which uses the original appraised value of the house). You can request removal of the PMI if your LTV ratio reaches 80% earlier than the scheduled date because you have made extra payments etc. but the lender is not required to grant this request without further ado; the lender is allowed to ask you to pay for an appraisal to make sure that the house has not declined in value in the mean time and so you actually are at 80% LTV, and can decline the request if you refuse to pay for the appraisal or if the appraisal shows that the value of the has decreased and so you are not actually at 80% LTV as per the new appraised value. When your LTV ratio reaches 78% (value as per the original appraisal) the lender is required to remove PMI even if you have not requested this already. Some lenders might be more forgetful than others about this matter.

My experience is that without proper legal documentation, (an appraisal) showing that you are below 80% LTV you will be stuck with the PMI.

In my state, State Taxes are based on the County Tax Assessors Valuation, which is usually about 80% of market value, and doesn't take into account market conditions. Lenders love to pull out the tax value (public record) and claim: "Based on the County Assessor; (Whom they take to be a professional in the field) your property value is worth ($X) and your loan ($X) so your LTV is ($X) This approach is a generally accepted practice in the field and the lender will win that legal battle in court every time. I am convinced that they are all in cahoots but that is a different post

There are two ways around this: 1- get an appraisal, which they will accept at face value. It will cost you $400 up front, so there is some risk if you get an appraiser who favors a lower value. Your lender may also require that they get to choose the Appraiser, (mine did) which seems like a crock- -and it probably is but I lucked out and my PMI was dropped. Check with your lender to see what they require before you run out to get an appraisal on your own.

Route 2 is equally risky, but has less up front cost. You can petition the Tax Assessor to raise your taxable value up to reflect real market value. Since the Lender accepts his assessment as a professional, the lender will drop your PMI if the value is raised to reflect greater than 20% Equity. The Assessor may or may not be receptive to raising your tax value, and even assuming he does there are some things to be aware of. If your Tax value goes up, your taxes also will go up and will stay up over time, so if you are in a state with high property taxes you will pay the $400 you saved, and more, in very short order. Your neighbors may not look on your higher value favorably as the assessor may see fit to raise taxes in the neighborhood, being that you have alerted him to the fact that your property was undervalued.

You can also choose to pursue the matter legally, but unless you get involved in a class action, or get a lawyer who is willing to work pro-bono, you will spend $400 before you find out if you even have a case.

Good Luck

In similar situation, on advice of my more experienced colleague, instead of PMI I arranged for 2nd mortgage (from the same bank). Yes, it has 1% higher rate, but it was trivial to close it when paid off.