What You Need to Know

• PMI refunds only apply to statutory cancellations - The Fourth Circuit ruled that homeowners are only entitled to refunds of unearned private mortgage insurance premiums when PMI is cancelled under specific statutory requirements in the Homeowners Protection Act, not through voluntary agreements with servicers.
• Two-step refund process requires initial qualification - Section 4902(f)(2) only requires insurers to transfer unearned premiums to servicers when borrowers first qualify for refunds under Section 4902(f)(1), creating a linked requirement that both must be satisfied.
• State law claims remain viable - While the federal HPA claim was dismissed, homeowners may still pursue state law remedies like unjust enrichment or breach of contract for voluntary PMI cancellation scenarios.

Introduction

In a recent decision, the United States Court of Appeals for the Fourth Circuit considered the scope of a homebuyer’s entitlement to a refund of unearned premiums from private mortgage insurance under the federal Homeowners Protection Act (the “HPA”), 12 U.S.C. § 4901 et. seq. The Court ultimately held that the statute’s refund directive did not apply to voluntary termination of private mortgage insurance by the servicer when the homebuyer did not otherwise meet any of the statutory requirements for a refund. Kovachevich v. Nat'l Mortg. Ins. Corp., 140 F.4th 548 (4th Cir. 2025).

Facts

When homebuyers seek to take out mortgage loans with less than a 20% downpayment, lenders will often require the purchase of private mortgage insurance (“PMI”). To protect homeowners from unnecessary costs, the HPA provides for the cancellation of the requirement where PMI is no longer necessary to protect the lenders due payments on the loan. Under certain circumstances, homebuyers are entitled to a refund of unearned premiums they may have paid for their insurance.

The plaintiff, Steve Kovachevich, was a homebuyer that was voluntarily released from his obligation to carry PMI by his mortgage servicer. Kovachevich had made a down payment of less than 20% of his home’s purchase price, and was required to purchase PMI. After a year, Kovachevich requested that his mortgage servicer, LoanCare, cancel the PMI. LoanCare denied his request, explaining that he did not pay down his mortgage enough to qualify for cancellation under the HPA, but it agreed to cancel his PMI requirement after the satisfaction of certain conditions. After Kovachevich met the conditions, LoanCare cancelled his PMI, and Kovachevich subsequently requested a refund on the PMI premiums he had prepaid to his mortgage insurer, National Mortgage Insurance Corporation (“NMIC”). Both LoanCare and NMIC denied his request because the payments were non-refundable. Kovachevich subsequently brought this action on behalf of himself and a putative class, alleging that NMIC’s failure to refund his PMI premiums violated the HPA, as well as state law claims of unjust enrichment and conversion. 1

After NMIC moved to dismiss, the District Court granted the motion, holding that Kovachevich was not entitled to a refund under the HPA, 12 U.S.C. § 4902(f). Specifically, Section 4902 requires the cancellation of PMI if the borrower, upon a request in writing, fulfills additional statutory requirements 2, or if a homebuyer meets specified standards involving whether the buyer has paid down his/her mortgage. 3 Importantly, Section 4902 provides for the return of a borrower’s unearned premiums, or prepaid premiums when PMI is terminated or cancelled:

(1) In general. Not later than 45 days after the termination or cancellation of a private mortgage insurance requirement under this section, all unearned premiums for private mortgage insurance shall be returned to the mortgagor by the servicer.

(2) Transfer of funds to servicer. Not later than 30 days after notification by the servicer of termination or cancellation of private mortgage insurance under this chapter with respect to a mortgagor, a mortgage insurer that is in possession of any unearned premiums of that mortgagor shall transfer to the servicer of the subject mortgage an amount equal to the amount of the unearned premiums for repayment in accordance with paragraph (1).

Section 4902(f)(1) to (2). Moreover, this Section does not preclude voluntary agreements by mortgage holders to terminate PMI requirements, even if the statutory triggers for termination and cancellation have not been satisfied. 12 U.S.C. § 4910(b).

The District Court held that Section 4902(f) did not entitle Kovachevich to a refund because his PMI was cancelled through a voluntary agreement, and not through the HPA’s statutory criteria. Specifically, Section 4902(f)(1), as noted above, only applies when the PMI is terminated under a statutory benchmark, 12 U.S.C. § 4902(a) to (c), and Kovachevich argued that he was entitled to PMI termination under Section 4902(a). The District Court rejected this argument as inconsistent with the statutory text. Next, Kovachevich argued that he was entitled to a refund under Section 4902(f)(2). However, the court also rejected the argument on the ground that the subsection only comes into play if a borrower has a valid refund claim under the first subsection, given that the language of the second subsection ties a mortgagor’s entitlement to the premium refund to what they are owed under the first subsection. As such, because Kovachevich had no claim under Section 4902(f)(1), he also could not recover under (f)(2).

Decision

On appeal, because Kovachevich abandoned his first argument regarding his entitlement to PMI termination under Section 4902(a). The Circuit Court then addressed whether Kovachevich would be entitled to a return on the unearned premiums when PMI is cancelled by voluntary agreement before a homebuyer satisfies one of the statutory criterion.

In that vein, both parties agreed that under Section 4902(f)(1), mortgage servicers must refund any unearned premiums to the homebuyer if and only if the homebuyer’s PMI requirement has ended as a result of one of the statutory criterion. The Court noted that Section 4902(f)(2) was designed to facilitate servicer refunds under the first subsection when the servicer may have acted as an intermediary, with a mortgage insurer taking ultimate possession of the payments. Moreover, the plain language of (f)(2) expressly links the subsection to (f)(1), tying an insurer’s obligation to transfer funds to a homebuyer’s right to the return of the funds under (f)(1). As such, a homebuyer without a claim to a refund under (f)(1) cannot recover under (f)(2).

Further, the Court rejected Kovachevich’s argument on the ground that (f)(2) mandates the premiums to be transferred to the mortgage servicer, and not the homeowner. The servicer is not required to pass those premiums to the homeowner. Kovachevich argued that this section also requires the servicer to return the premiums to the homeowner. However, the Court determined that such a reading of (f)(2) would render (f)(1) meaningless, since (f)(1) delineates the servicer’s obligation to return premiums to a homeowner.

The Court recognized that while Kovachevich and his mortgage servicer could agree to terminate his PMI obligations earlier than HPA otherwise requires, pursuant to Section 4910(b), voluntary cancellation does not trigger the same refund obligation as a statutory cancellation under Section 4902. The Court explained that Congress had established three benchmarks for showing that PMI is no longer justified, and required the return of unearned premiums once a statutory benchmark is satisfied, but left room for homebuyers to voluntarily bargain around the statutory structure through cancellation agreements. The Court noted that homebuyers seeking to enter voluntary cancellation agreements may be able to recover unearned premiums by suing on contracts under state law.

Finally, the Court vacated the district court’s dismissal of Kovachevich’s state claims for lack of subject matter jurisdiction upon the dismissal of the federal claim, on the ground that a federal court has supplemental jurisdiction over related state law claims.

As such, the Court affirmed the dismissal of Kovachevich’s HPA claim, and remanded the state law claims for the district court’s determination of whether it wanted to exercise supplemental jurisdiction over those claims.

Takeaway

This case highlights the purpose of the Homeowners Protection Act and its protections for homebuyers as defined by specific statutory benchmarks. For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Matthews Florez at mflorez@riker.com or Shelley Wu at swu@riker.com.

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1 Kovachevich and LoanCare entered into a settlement, where Kovachevich agreed to dismiss his claims against them with prejudice.

2 For a borrower to be eligible for cancellation on request in writing, the borrower must also have a good payment history on the residential mortgage, be current on the payments, and satisfy any requirement of the lender to provide evidence that the value of the property has not declined below its original value and certify that the property is not encumbered by a subordinate lien. 12 U.S.C. § 4902(a).

3 Once a homeowner has paid down at least 20% of the original value of their home, he/she reaches a cancellation date, which entitles him/her to cancel the PMI upon request, as long as he/she has reliably made payments and the value of the home has not declined. 12 U.S.C. § 4902(a). If the homeowner pays down at least 22%, he/she triggers a statutory termination date, and his insurance requirement automatically ends, as long as he/she is current on payments, regardless of the payment history or current value of the home. 12 U.S.C. § 4902(b). The insurance requirement is also terminated automatically if the homeowner reaches the midpoint of his/her mortgages’ amortization period and is current on payments. 12 U.S.C. § 4902(c).