Fannie Mae Expands Mortgage Insurance Cancellation Outreach for Homeowners

Fannie Mae Lets Servicers Proactively Contact Borrowers About Dropping Mortgage Insurance

Fannie Mae is allowing mortgage servicers to proactively contact homeowners who may qualify to terminate conventional mortgage insurance based on their property’s current value, reversing a restriction that generally required borrowers to initiate that process themselves.

The change took effect immediately on Sept. 16, 2026, under Lender Letter LL-2026-07 and will be incorporated into a future update of Fannie Mae’s Servicing Guide.

For homeowners whose properties have appreciated enough to meet Fannie Mae’s loan-to-value requirements, the change could make it easier to learn that mortgage insurance may no longer be required. It also gives servicers a new opportunity to identify potentially eligible borrowers rather than waiting for them to ask.

What Fannie Mae changed

Fannie Mae’s existing Servicing Guide says a servicer must not solicit a borrower for mortgage insurance termination based on the current value of the property. Under that policy, termination based on current value generally had to begin with a borrower request.

LL-2026-07 changes that restriction.

At the direction of the Federal Housing Finance Agency, Fannie Mae said servicers may proactively contact borrowers whose mortgages may be close to or have reached the applicable LTV requirements for terminating mortgage insurance based on current property value. Servicers can also tell those borrowers what actions are required to seek termination.

The Federal Home Loan Bank of Chicago’s Mortgage Partnership Finance program subsequently told participating institutions that the change is effective immediately for applicable MPF Xtra servicing.

The distinction matters: Fannie Mae is allowing servicers to solicit potentially eligible borrowers. It is not eliminating the underlying eligibility standards for terminating mortgage insurance.

Homeowners still have to meet MI termination requirements

Borrowers contacted by their servicer will not automatically lose mortgage insurance simply because their home has appreciated.

For borrower-initiated termination based on current property value, Fannie Mae’s servicing requirements include applicable LTV and payment-history standards and a qualifying property valuation.

Among other requirements, Fannie Mae says an acceptable payment record generally means the mortgage is current when termination is requested, with no payment 30 or more days past due during the preceding 12 months and no payment 60 or more days past due during the preceding 24 months. Additional requirements can apply depending on the loan and circumstances.

The servicer also must establish the property value through Fannie Mae’s required valuation process when evaluating termination based on current value.

In other words, rising home equity can create an opportunity to eliminate MI, but appreciation by itself does not guarantee that a borrower qualifies.

Why the policy could matter for borrowers

Private mortgage insurance generally protects the lender or investor against losses if a borrower defaults; it does not provide equivalent protection to the homeowner. Fannie Mae describes mortgage insurance as coverage that compensates lenders or investors for losses resulting from mortgage default.

For eligible borrowers, terminating MI reduces the portion of the monthly housing payment attributable to the mortgage insurance premium.

Fannie Mae requires servicers to reduce a borrower’s mortgage payment by the amount being collected for the mortgage insurance premium after qualifying MI is terminated, unless the premium was financed as part of the mortgage amount. Servicers also must provide the required termination notice.

Until now, borrowers who qualified because of increases in their home's current value could miss that opportunity simply because they did not know they could request a review.

The new policy gives servicers permission to bring that possibility directly to them.

Original-value termination rules remain important

Fannie Mae already permits servicers to identify loans approaching or reaching MI termination requirements based on the property's original value and notify borrowers about the steps required to terminate coverage.

Separately, automatic termination rules remain in place.

For qualifying mortgages secured by a one-unit principal residence or second home and closed on or after July 29, 1999, Fannie Mae generally provides for automatic MI termination when the scheduled principal balance first reaches 78% of the property's original value, provided the borrower is current, or at the applicable midpoint of the amortization period. Different requirements apply to certain other property and loan categories.

The September policy change is significant because it extends proactive borrower outreach to another route: termination based on the property's current value.

That route can become relevant before scheduled amortization alone would eliminate mortgage insurance when home values have risen substantially.

What servicers need to do

The immediate operational change is straightforward: servicers can now identify potentially eligible Fannie Mae loans and contact borrowers about requesting MI termination based on current value.

They still must follow Fannie Mae’s underlying termination and valuation requirements before actually removing the coverage.

Fannie Mae said the policy will be incorporated into a future Servicing Guide update.

For homeowners paying mortgage insurance, the change creates another reason to pay attention to communications from their servicer. A notice about MI termination could signal that accumulated equity or home-price appreciation has put them close to the threshold where the additional monthly insurance expense can potentially be eliminated.