Statutory Benchmarks, Not Voluntary Agreements:
The Fourth Circuit Narrows HPA Refund Rights for Unearned PMI Premiums

Introduction

In Steve Kovachevich v. National Mortgage Insurance Corporation, No. 23-2071 (4th Cir. June 16 2025), the United States Court of Appeals for the Fourth Circuit delivered the first appellate interpretation of 12 U.S.C. § 4902(f) of the Homeowners Protection Act of 1998 (“HPA”). The Court held that borrowers are entitled to a refund of “unearned” private mortgage insurance (“PMI”) premiums only when PMI is cancelled or terminated by operation of one of § 4902’s statutory triggers—not when the parties voluntarily agree to end PMI early under § 4910(b). The Court affirmed dismissal of the federal HPA claim, vacated dismissal of state-law claims for unjust enrichment and conversion, and remanded for the district court to consider supplemental jurisdiction.

The opinion, authored by Judge Harris and joined by Judge Gregory and Senior Judge Keenan, resolves a common dispute between homeowners and mortgage insurers over prepaid PMI premiums and clarifies the textual boundaries of the HPA’s refund mandate.

Summary of the Judgment

• Federal Claim (HPA): Dismissal affirmed. Section 4902(f)(1) refunds apply solely when PMI ends under § 4902(a), (b), or (c). Kovachevich’s PMI ended via a voluntary agreement; therefore, he had no statutory refund right. Because § 4902(f)(2) merely facilitates refunds owed under (f)(1), it too provided no relief.
• State-Law Claims: Dismissal vacated and remanded. The district court incorrectly assumed it lacked jurisdiction once the HPA claim failed. Under 28 U.S.C. § 1367, the court retains discretion to decide whether to exercise supplemental jurisdiction over the related state claims.

Analysis

1. Precedents Cited

The panel referenced several Supreme Court and Fourth Circuit authorities, primarily for interpretive or jurisdictional principles rather than substantive HPA guidance:

• Philips v. Pitt County Memorial Hospital, 572 F.3d 176 (4th Cir. 2009) – Standard for 12(b)(6) review and incorporation of documents attached to pleadings.
• Ysleta del Sur Pueblo v. Texas, 596 U.S. 685 (2022) – Canon against superfluity; used to reject a reading of § 4902(f)(2) that would render § 4902(f)(1) meaningless.
• Michigan v. Bay Mills Indian Community, 572 U.S. 782 (2014) – Acknowledges legislative anomalies when Congress legislates “by parts,” supporting the Court’s deference to statutory text even if it creates uneven results.
• Mine Workers v. Gibbs, 383 U.S. 715 (1966); City of Chicago v. International College of Surgeons, 522 U.S. 156 (1997); Carlsbad Tech., Inc. v. HIF Bio, Inc., 556 U.S. 635 (2009) – Foundational cases on supplemental jurisdiction.
• Royal Canin U.S.A., Inc. v. Wullschleger, 604 U.S. 22 (2025) – Described the “ordinary course” of relinquishing state claims when federal claims drop out.

Although none involved PMI, these precedents shaped the Court’s interpretive method:

1. They endorse giving full effect to every statutory word and avoiding interpretations that create surplusage (Ysleta del Sur Pueblo).
2. They confirm courts’ discretion over supplemental jurisdiction (Gibbs, Carlsbad).

2. Legal Reasoning

1. Textual pairing of § 4902(f)(1) & (f)(2)
   • Paragraph (f)(1) imposes a refund duty on the servicer when PMI ends “under this section,” i.e., under subsections (a)–(c).
   • Paragraph (f)(2) addresses logistics: if the insurer, not the servicer, holds the money, the insurer must transfer an amount “for repayment in accordance with paragraph (1).”
   • Because Kovachevich could not invoke (f)(1), no “amount” was repayable, making his claim under (f)(2) futile.
2. Savings Clause Does Not Create Refund Right
   • Section 4910(b) states that § 4902 “do[es] not prevent” earlier voluntary cancellations.
   • The Court held this provision merely preserves contractual freedom; it does not incorporate § 4902(f)’s refund remedy into voluntary cancellations, nor does it create an independent statutory claim.
3. “Under this section” vs. “under this chapter”
   • Kovachevich argued that the broader phrase “under this chapter” in (f)(2) covers § 4910(b) cancellations.
   • The Court answered that even if (f)(2) applies, the borrower still receives only what (f)(1) authorizes—zero for early voluntary cancellations. This reading avoids rendering (f)(1) surplusage.
4. Purposivist Arguments Rejected
   • While the HPA’s purpose is to protect borrowers from paying unnecessary PMI, the Court emphasized that purpose cannot override clear statutory text. Congress chose to tie refunds to objective LTV benchmarks, not to all circumstances where PMI ceases.
5. Supplemental Jurisdiction Misstep
   • The district court conflated federal-question dismissal with loss of subject-matter jurisdiction. Under § 1367(c), the court retains power and must decide whether to keep or dismiss the pendent state claims. The Fourth Circuit remanded for that discretionary determination.

3. Impact of the Judgment

• Immediate Practical Effect
  Borrowers who prepay PMI premiums and secure early cancellation by negotiation cannot invoke the HPA’s refund mechanism. Their recourse lies in contractual language or state common-law theories (e.g., unjust enrichment).
• Industry Guidance
  Mortgage insurers and servicers may rely on this precedent to deny HPA-based refund demands when PMI ends outside statutory benchmarks, reducing class-action exposure in the Fourth Circuit.
• Litigation Strategy
  Plaintiffs’ counsel are likely to plead state claims alongside federal HPA claims, emphasizing contract theory or state consumer-protection statutes. Defendants will question supplemental jurisdiction, but courts must now explicitly balance § 1367(c) factors.
• Nationwide Influence
  Because no other circuit has interpreted § 4902(f), this decision may become persuasive authority elsewhere, potentially leading to a circuit split if another court extends refund rights to voluntary cancellations.
• Legislative Attention
  Consumer-advocacy groups may urge Congress to amend the HPA to close what they will view as a refund “loophole” for prepaid premiums.

Complex Concepts Simplified

• Private Mortgage Insurance (PMI): Insurance that protects a lender if the borrower defaults, typically required when the borrower’s down payment is < 20% of the home’s value.
• Unearned Premiums: The unused portion of prepaid insurance premiums covering periods after the policy is cancelled.
• Statutory “Cancellation” vs. “Termination”:
  • Cancellation (§ 4902(a)) – Borrower requests PMI removal once 20% equity is reached.
  • Termination (§ 4902(b)–(c)) – PMI ends automatically at 22% equity or midpoint of amortization.
• Voluntary Cancellation (§ 4910(b)): A separate, contractual pathway allowing parties to end PMI earlier than the statute would require.
• Supplemental Jurisdiction (§ 1367): Federal courts may hear state claims linked to a federal case. After the federal claim exits, the court decides—based on convenience, fairness, and comity—whether to keep the state claims.

Conclusion

Kovachevich authoritatively delineates the scope of the Homeowners Protection Act’s refund provision: only statutory PMI cancellations/terminations under § 4902 trigger the automatic return of unearned premiums. Voluntary cancellation agreements, while expressly permitted by § 4910(b), do not carry the same federal refund entitlement. Borrowers must turn to contract or state law for relief in those scenarios.

Beyond resolving a question of statutory interpretation, the decision underscores two broader themes: (1) courts will not stretch remedial statutes past clear textual limits, and (2) district courts must engage in the discretionary analysis required by 28 U.S.C. § 1367 when federal claims disappear. As the first appellate court to address § 4902(f), the Fourth Circuit sets a precedent likely to influence both litigation strategies and possible legislative reforms in the mortgage-insurance arena.