12 U.S.C. § 4905 — Disclosure requirements for lender paid mortgage insurance

(a) Definitions. For this section:

(1) “Borrower paid mortgage insurance^*” means private mortgage insurance^* required for a residential mortgage transaction^* when the borrower makes the payments. This section does not define “private mortgage insurance,” “residential mortgage^* transaction,” or “borrower.”

(2) “Lender paid mortgage insurance” means private mortgage insurance required for a residential mortgage transaction when someone other than the borrower makes the payments. This section does not define “private mortgage insurance,” “residential mortgage transaction,” or “borrower.”

(3) “Loan commitment” means a prospective mortgagee’s written confirmation that it approved a prospective mortgagor’s application for a residential mortgage loan, including any closing conditions. This section does not define “mortgagee^*,” “mortgagor^*,” or “residential mortgage loan.”

(b) Exclusion. Sections 4902 through 4904 of this title do not apply to lender-paid mortgage insurance.

(c) Notices to mortgagor. When lender-paid mortgage insurance is required for a residential mortgage transaction:

(1) No later than the date the loan commitment is made, the prospective mortgagee must give the prospective mortgagor a written notice stating:

(A) Lender-paid mortgage insurance differs from borrower-paid mortgage insurance. The mortgagor cannot cancel lender-paid mortgage insurance. Borrower-paid mortgage insurance could be cancellable by the mortgagor under section 4902(a) and could end automatically on the termination date^* under section 4902(b).

(B) Lender-paid mortgage insurance—

(i) usually results in a higher interest rate than borrower-paid mortgage insurance would; and

(ii) ends only when the residential mortgage is refinanced, paid off, or otherwise ended. “Refinanced” has the meaning given in regulations issued by the Board of Governors of the Federal Reserve System under the Truth in Lending Act (15 U.S.C. 1601 et seq.).

(C) Both kinds of mortgage insurance have benefits and disadvantages. The notice must include a general analysis of the different costs and benefits of a residential mortgage with lender-paid insurance compared with borrower-paid insurance over 10 years, assuming the prevailing interest rates and property-appreciation rates.

(D) Lender-paid mortgage insurance may be deductible for Federal income-tax purposes if the mortgagor itemizes expenses for that purpose.

(2) No later than 30 days after the termination date that would apply to borrower-paid mortgage insurance, the servicer^* must give the mortgagor a written notice saying that the mortgagor may want to review financing options that could remove the need for private mortgage insurance for the residential mortgage transaction. This section does not define “servicer.”

(d) Standard forms. The servicer may create and use one or more standard forms for the notices required by subsection (c).