Fannie Mae LL-2026-07: Mortgage Insurance Termination Requirements Every Servicer Needs to Know

Mortgage insurance termination requirements just got a significant update. Fannie Mae, at the direction of the Federal Housing Finance Agency (FHFA), has issued Lender Letter LL-2026-07, which permits servicers to actively solicit borrowers who may be eligible to terminate their mortgage insurance based on current property value.

This change is effective immediately and represents a meaningful shift in how servicers can interact with borrowers regarding MI termination—moving from a passive, borrower-initiated process to one where servicers can proactively identify and notify eligible homeowners.

What LL-2026-07 Actually Changes

The core change is straightforward: Servicers can now proactively contact borrowers whose loans may close to or have reached the loan-to-value (LTV) requirements for MI termination based on current property value.

Prior to this Lender Letter, MI termination based on current value was typically a borrower-initiated process. Borrowers had to know they were eligible, understand the requirements, and take action themselves.

Under LL-2026-07, servicers can now:

• Identify borrowers who may be close to or have reached LTV requirements for MI termination based on current value
• Proactively reach out to these borrowers
• Notify them of the specific actions required to terminate MI under Servicing Guide B-8.1-04

The policy specifically references "Borrower-Initiated Termination of Conventional Mortgage Insurance Based on Current Value of the Property" in Servicing Guide B-8.1-04. While the termination request remains borrower-initiated from a procedural standpoint, servicers can now initiate the conversation.

Why FHFA Directed This Change

The FHFA directive underlying this Lender Letter reflects a broader policy goal: ensuring borrowers who qualify for MI termination actually receive it. Mortgage insurance can cost borrowers hundreds of dollars monthly, and unnecessary MI payments create an economic burden for homeowners who have built sufficient equity.

By allowing servicer-initiated outreach, the policy aims to:

• Reduce unnecessary MI costs for eligible borrowers
• Improve awareness of MI termination rights
• Align servicer practices with borrower-friendly outcomes

Compliance Steps Servicers Must Take Now

Because LL-2026-07 is effective immediately, servicers need to act quickly to implement compliant processes. Here's what your compliance and operations teams should prioritize:

1. Develop Eligibility Identification Criteria

You'll need a systematic method to identify borrowers who may be eligible. This involves:

• Analyzing current LTV ratios using available valuation data
• Estimating property value changes in your portfolio based on market trends
• Flagging accounts that may be approaching or have reached applicable LTV thresholds

Consider whether your servicing platform can automate identification or whether manual review processes are needed. Consult Servicing Guide B-8.1-04 for specific LTV and eligibility requirements.

2. Create Approved Solicitation Materials

Any borrower communication must be accurate, clear, and compliant with all applicable regulations. Your solicitation materials should:

• Explain MI termination eligibility based on current value
• Detail the steps borrowers must take to request termination (per Guide B-8.1-04)
• Direct borrowers to official Guide requirements for documentation and process
• Avoid any misleading statements about guarantees or timelines

Ensure your communications are not only accurate but also clear and not likely to confuse borrowers about what's required.

3. Train Frontline Staff

Borrowers who receive solicitation letters will likely call with questions. Your customer service representatives need to understand:

• What MI termination based on current value means
• The difference between original value and current value termination
• That borrowers must follow Guide B-8.1-04 requirements for documentation and process
• That termination is not guaranteed until all requirements are met

4. Maintain Form SG-343 Compliance

LL-2026-07 reminds servicers that Form SG-343 must continue to be submitted to the applicable MPF Provider whenever mortgage insurance is cancelled or terminated. This reporting requirement remains in effect regardless of how the termination process was initiated.

5. Document For Audit Purposes

Create clear audit trails showing:

• Which borrowers were solicited and when
• The basis for eligibility determination (valuation methodology used)
• What communications were sent
• How responses were processed

This documentation supports compliance verification and responds to investor and regulatory inquiries.

Termination Requirements Under Servicing Guide B-8.1-04

While LL-2026-07 permits the solicitation, the actual termination requirements remain governed by Servicing Guide B-8.1-04, "Termination of Conventional Mortgage Insurance." Servicers must ensure their communications accurately reflect these requirements.

The Lender Letter references borrower-initiated termination based on current value but does not specify the detailed requirements. Servicers should consult Servicing Guide B-8.1-04 directly for the applicable LTV thresholds, payment history requirements, acceptable valuation methods, and other criteria borrowers must meet to terminate MI based on current property value.

Your solicitation communications should outline that specific requirements exist and direct borrowers to request full details through proper channels.

Connecting This to Broader Servicing Compliance

This Lender Letter arrives alongside other servicing updates. MPF Announcement 2026-64, which references LL-2026-07, confirms the policy applies to MPF Xtra servicing and reinforces the Form SG-343 reporting requirement.

Servicers should think holistically about how this MI termination solicitation fits into their broader compliance infrastructure:

• Fair lending considerations: Are eligibility determinations applied consistently across all borrower populations?
• Communications compliance: Do solicitation materials meet all applicable regulatory requirements?
• Operational timing: How do these solicitations interact with annual escrow analysis, payment change notices, and other required communications?

Working with an automated regulatory tracking tool like Reglith can help compliance teams monitor these overlapping requirements without missing critical updates.

What About Guide Updates?

LL-2026-07 states that this policy change "will be reflected in a future Servicing Guide update." This means the current Guide language doesn't yet reflect the solicitation authority, but servicers can rely on the Lender Letter implementation immediately.

Watch for the formal Guide update, which will codify:

• Explicit solicitation authority in the Guide text
• Any procedural requirements specific to servicer-initiated outreach
• Potential clarifications on timing, frequency, or content requirements

Until then, LL-2026-07 provides sufficient authority to proceed, but implement processes with flexibility to adapt when the Guide update arrives.

Practical Implementation Considerations

Servicers face a decision: implement proactive solicitation broadly, or take a targeted approach.

A targeted approach might focus first on:

• Borrowers in markets with significant appreciation
• High-balance loans where LTV thresholds may be closer to being met
• Borrowers with strong payment histories who may be more likely to qualify

A broader approach would cast a wider net but might generate inquiries from borrowers who don't actually qualify.

Consider also the interaction with existing annual communication requirements. Other recent announcements establish various borrower communication obligations. Servicers could potentially coordinate MI eligibility messaging with other required communications, creating operational efficiency while meeting multiple obligations.

Risks of Non-Compliance or Poor Execution

While LL-2026-07 creates an opportunity for proactive borrower outreach, it also creates compliance risk if executed poorly.

Potential pitfalls include:

• Inaccurate eligibility determinations leading to misleading communications
• Overpromising termination likelihood without proper qualifications
• Inconsistent application raising fair lending concerns
• Failure to properly process termination requests once received
• Incomplete documentation for audit and regulatory purposes

These risks are manageable with proper planning, legal review of communications, and staff training. The upside—helping borrowers reduce costs while meeting regulatory expectations—justifies the implementation effort.

Key Takeaways

• Servicers can now proactively solicit borrowers who may be eligible for MI termination based on current property value under LL-2026-07, effective immediately.
• The solicitation authority is permissive, not mandatory—servicers are allowed but not required to conduct this outreach.
• All termination requirements in Guide B-8.1-04 remain in effect; solicitation simply initiates the borrower awareness process.
• Form SG-343 reporting continues for any MI cancellation or termination, regardless of how the process began.
• Compliant implementation requires clear eligibility criteria, approved communication templates, trained staff, and thorough audit documentation.
• Watch for the formal Servicing Guide update that will codify this policy and may add procedural details.

Lender Letter LL-2026-07 represents a shift toward more proactive, borrower-friendly servicing practices. For compliance teams, it's an opportunity to demonstrate value by implementing processes that help borrowers reduce costs while maintaining regulatory standards.