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President Donald Trump signed an executive order Thursday that could make mortgage insurance, an extra cost many homebuyers pay every month, end automatically once they own a big enough share of their home based on what it’s worth today.
The White House says the move would remove a large monthly expense for borrowers who qualify. It would work through a pilot program at Fannie Mae and Freddie Mac, two government-sponsored companies that buy home loans from lenders.
The program isn’t guaranteed. The Federal Housing Finance Agency, which regulates both companies, must first decide it’s in their interest and the public’s, and no start date has been set.
What is mortgage insurance, and why can it be canceled?
A mortgage is the loan used to buy a home. Mortgage insurance is a separate monthly charge that protects the lender, not the homeowner, if the borrower stops paying. It’s not the same as homeowners insurance, which covers the house itself.
Lenders usually require it when a buyer puts little money down. As the owner pays off the loan or the home gains value, the lender’s risk shrinks and the insurance can be dropped. The loan stays; only the extra charge goes away.
How could Trump’s order make your mortgage insurance go away?
Fannie Mae and Freddie Mac would regularly estimate home values using automated valuation models, computer programs that price a property from recent sales and other data. If a borrower appears to own enough of the home, the insurance would be canceled without the borrower having to ask.
What the owner actually owns is called equity: the home’s value minus what’s still owed. Someone who owes $270,000 on a $300,000 home has $30,000 in equity. If the home’s value climbs to $350,000, that equity grows to $80,000 without a single extra payment.
Loan servicers, the companies that collect monthly mortgage payments, would have to tell borrowers promptly when they may qualify and cut unnecessary paperwork and appraisal costs.
Who qualifies for Trump’s mortgage insurance pilot?
Under the order, a borrower would need to meet all of these conditions:
- Have a loan owned or backed by Fannie Mae or Freddie Mac
- Have taken out that loan after the pilot program starts
- Have enough equity based on the home’s current value
- Have a good payment history and meet other standards the two companies set
That means people who already have a mortgage wouldn’t qualify, even if their home has gained value. Loans backed by the Federal Housing Administration, known as FHA loans, aren’t included either.
Fannie Mae and Freddie Mac haven’t released the details yet, including how much equity a borrower would need and how often loans would be reviewed.