The HPA was enacted to protect consumers from the unscrupulous practices of some private mortgage insurance companies, which were not informing consumers of the consumer’s right to cancel their mortgage insurance at least by the time the individual had paid off 80% of their home.

Consumers may be required to pay for private mortgage insurance to protect the lending institution if the borrower makes an initial payment of less than 20% of the value of the home. By law, lenders cannot require borrowers to have PMI after 80% of the original value of the mortgage has been paid off.

To enforce this law, the Homeowners Protection Act (HPA) was passed to also require that the insurance companies that wrote PMI policies would automatically cancel the policy after the consumer had paid off 78% of the principal amount. PMI can be expensive over time, often costing consumers as much as 1% of the principal amount of the mortgage loan per year.

In the past, many PMI companies would continue to draw premiums after the consumer had reached the requisite 80% equity, and some companies would attempt to convince consumers that they were delinquent on their obligation if they had stopped paying.

The Homeowners Protection Act solved that problem by making sure PMI companies would be held accountable and that consumers would be informed.