The head of the Federal Housing Finance Agency could direct Fannie Mae and Freddie Mac to test automated home valuations as a way to spot borrowers who have built enough equity to drop mortgage insurance. The idea comes from an executive order signed Oct. 22, and it is a conditional direction to the regulator, not a change that has taken effect.
The order covers only loans made after such a pilot starts, so it would not reach anyone with a mortgage today. Cancelling private mortgage insurance on an existing loan is governed by a separate federal law, and that route is open now.
What does the order tell the housing regulator to do?
Section 2 of the order, titled “Proactive Cancellation of Excessive Mortgage Insurance,” says the FHFA Director “shall, if he determines that it is in the best interests of” the enterprises or the agency, direct Fannie Mae and Freddie Mac to run a pilot. The condition is the point: the Director decides whether to start it, and no date is set.
If the pilot goes ahead, the two companies would use automated valuation models, which estimate a home’s market value by computer, to review loans they own, guarantee or package into securities. The aim is to flag borrowers who appear eligible to have mortgage insurance cancelled. The order says servicers would be asked to notify borrowers promptly where feasible and to cut unnecessary paperwork and appraisal costs.
How does mortgage insurance come off a loan today?
Private mortgage insurance, usually required when a down payment is under 20 percent, can be dropped on a single-family home that is the borrower’s principal residence under rules that apply to loans closed on or after July 29, 1999. According to the Consumer Financial Protection Bureau, a borrower can ask the servicer in writing to cancel once the principal balance reaches 80 percent of the home’s original value, or earlier through extra payments.
The servicer must grant the request if the borrower has a good payment history, is current, certifies there are no junior liens such as a second mortgage, and shows the home’s value has not fallen below its original value, usually through an appraisal. That appraisal is a cost the pilot in the order is meant to reduce for future loans.
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The same page says the servicer must end the insurance automatically on the date the balance is scheduled to reach 78 percent of the original value, provided the borrower is current. If the borrower is behind, termination follows shortly after the account catches up.
Is there a backstop for borrowers who miss both dates?
The CFPB says a lender or servicer must also end the insurance the month after the loan reaches the midpoint of its amortisation schedule, which is after 15 years on a 30-year loan, whatever the balance. Fannie Mae and Freddie Mac may set their own cancellation rules for loans they hold, but the agency says these cannot be less favourable to the borrower than the federal minimum.
Borrowers who are unsure which kind of loan they hold can read the servicer’s monthly statement, which normally shows a mortgage insurance charge as a separate line. A loan with no such line is not paying private mortgage insurance, and the cancellation rules described here would not apply to it.
The same page notes that FHA and VA loans follow different rules, and a lender may offer its own standards. The borrower’s mortgage insurance disclosure form shows the first date a cancellation request is eligible.
What would the pilot change, and what stays the same?
The difference would be who starts the process. Under current law the borrower or the servicer’s schedule triggers cancellation; under the pilot, a computer estimate of value would be used to find loans that may already qualify, and the servicer would be asked to tell the borrower. The order says cancellation would still depend on current market-value equity, safety and soundness, and other requirements.
No saving from the pilot can be counted yet. The order gives no estimate of how many borrowers it might reach or how much monthly insurance cost it might remove, and the Director has not announced a decision. Mortgage insurance premiums on a loan today continue until a request is granted or an automatic date arrives.
The order also says it creates no right or benefit and is to be carried out consistent with applicable law and subject to appropriations. A borrower on a loan made before any pilot starts has the existing 80 percent and 78 percent rules, nothing more and nothing less.
Paying mortgage insurance on a loan with real equity?
The detail that gets missed is that the cancellation right belongs to the borrower now and the pilot belongs to a future loan. A homeowner who waits for a regulator’s programme can keep paying a premium for months that the written-request rule would have ended.
“Cut Your House Costs” gathers the other big home bills in one place. It includes a lower home insurance bill by shopping and asking for every discount, home equity options compared, from a HELOC to a reverse mortgage, and selling without the tax: up to $250,000 of profit, or $500,000 for a couple. The guide also has a home-cost audit worksheet that lists each recurring housing cost side by side.
Get the Cut Your House Costs guide for the home bills beyond mortgage insurance →
This article was produced with AI assistance and edited for accuracy against the sources linked above.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
