In our view, it is acceptable to use the home value estimate generated by Freddie Mac’s Home Value Explorer (HVE) tool for the purpose of calculating the termination of private mortgage insurance (PMI).

Under the Homeowners Protection Act (HPA), a borrower’s PMI automatically terminates on the date when the principal balance of the mortgage is first scheduled to reach 78% of the original value of the property securing the loan. In the context of a refinance, the “original value” means the “appraised value relied upon by the mortgagee to approve the refinance transaction.”

Neither the HPA nor any guidance we are aware of addresses what data to use when a transaction, such as a streamlined refinancing, did not require an appraisal. However, the precise language of the HPA, as well as legislative comments regarding amendments to the HPA, make clear that the home’s value at the time of the refinance — rather than the value established when the loan was originally consummated — should be the basis for calculating the PMI’s termination date.

In this case, you have indicated that at the time of the refinance, the home’s value was established using Freddie Mac’s HVE tool. Consequently, we believe it is appropriate to use that value to calculate the PMI termination date.

For resources related to our guidance, please see:

• Homeowners Protection Act, 12 USC 4902(b) (“A requirement for private mortgage insurance in connection with a residential mortgage transaction shall terminate with respect to payments for that mortgage insurance made by the mortgagor—(1) on the termination date if, on that date, the mortgagor is current on the payments required by the terms of the residential mortgage transaction; or (2) if the mortgagor is not current on the termination date, on the first day of the first month beginning after the date that the mortgagor becomes current on the payments required by the terms of the residential mortgage transaction.”)

• Homeowners Protection Act, 12 USC 4901(18) (“The term ‘termination date’ means . . . with respect to a fixed rate mortgage, the date on which the principal balance of the mortgage, based solely on the initial amortization schedule for that mortgage, and irrespective of the outstanding balance for that mortgage on that date, is first scheduled to reach 78 percent of the original value of the property securing the loan . . .”)

• Homeowners Protection Act, 12 USC 4901(12) ​(“The term ‘original value’, with respect to a residential mortgage transaction, means the lesser of the sales price of the property securing the mortgage, as reflected in the contract, or the appraised value at the time at which the subject residential mortgage transaction was consummated. In the case of a residential mortgage transaction for refinancing the principal residence of the mortgagor, such term means only the appraised value relied upon by the mortgagee to approve the refinance transaction.)

• Congressional Record for Private Mortgage Insurance Technical Corrections and Clarifications Act, Statement of Representative LaFalce, 146 Cong. Rec. H3578, H3580 (May 23, 2000) (“This bill clarifies that for loans for the purpose of refinancing when establishing [loan-to-value] ratios, the value will be determined at the time of the refinance, not at the original time of home purchase. This avoids unfairly penalizing the borrower when the home has risen in value.”)

• Freddie Mac website (“Home Value Explorer® (HVE®) is a Freddie Mac Automated Valuation Model (AVM) tool that generates an estimate of property value in seconds.”)