Call Kurtis: Why Can't I Cancel Private Mortgage Insurance?

When she bought her Esparto home in August 2009, Kerry Wicker thought she had found the ideal time to take advantage of the down housing market.

"I need to sand it and refinish it," she said of the original hardwood floor in her 1940s-built home.

"I'd been waiting to buy a house for a long, long time," she added.

Still improving the house, Wicker said it would be nice to stop paying $57 a month for private mortgage insurance (PMI).

"It's money down the drain," she said.

Wicker can cancel her PMI once she has paid 20% of the home's original value, leaving an 80% loan-to-value ratio, according to the agreement with her lender. Wicker reached that 80% in August.

"I contact Wells Fargo [and say], "You can delete my PMI now," she said, but adding that the bank now asks her to reach a 78% loan-to-value ratio.

In other words, Wicker would need to pay down her loan another $2,500.

"I can understand the frustration," said Philip Duncan, Executive Vice President of Vitek Mortgage Group.

By federal law, a lender must drop your PMI once its customer reaches the 80% loan-to-value if the customer requests it, according to Duncan.

That is, as long as the customer is current on his or her payments.

If a customer's home has dropped in value, he or she may need to keep paying the mortgage insurance. She got an appraisal last year that indicated her home's value went up.

If a customer doesn't ask for PMI to be dropped, the law says lenders must stop charging once that customer is scheduled to reach a 78% balance on the original home's value.

"It basically puts a little more responsibility on lenders to have to remove the mortgage insurance at a certain point," Duncan said.

Wells Fargo issued this statement to CBS13:

We continue to work with Ms. Wicker on her request to remove the private mortgage insurance requirements from her loan. Admittedly, our efforts to communicate with her could have been clearer throughout this process, and we hope to resolve this matter with her very soon.

Mortgage insurance requirements can vary depending on the investor requirements on the loan and can change within the first few years after the loan is originated. In most cases, a customer trying to remove mortgage insurance from their monthly payment in the first two years of the loan must demonstrate structural improvements in the property that reduce the loan-to-value ratios to within established guidelines based on the home's value at the time of appraisal.

Generally, if a homeowner wishes to eliminate mortgage insurance from their payment but their current loan to value is above investor requirements, they would need to make a payment that would bring the loan balance down to the amount where investor guidelines would allow for the removal of the insurance. That payment would need to be remitted shortly after the appraisal was made, otherwise the appraisal may expire, and a new one would have to be ordered.

Julie Campbell
Wells Fargo Corporate Communications

Wicker tells us Wells Fargo is requiring a new appraisal. Now frustrated, she is considering refinancing with a different lender, having learned a lesson about mortgages, she said.

"Don't have PMI if you can avoid it," she said.

Federal law has some exceptions to the rule, however.

Some customers may have to continue to pay PMI even after paying down their loan to 80 percent if they have an FHA, VA or high-risk loan, or if they aren't current on their payments.