Canceled PMI…Reinstated?

I was recently contacted by someone who was told by his credit union, BECU, that his private mortgage insurance was going to be canceled.  He even received new payment coupons with the reduced mortgage payment without the private mortgage insurance.   But just before he was getting ready to make that new mortgage payment, he received a letter dated June 9, 2008 from BECU that states:

Dear Customer:

A recent audit of your account revealed that the private mortgage insurance (PMI) was removed in error.  The loan to value (LTV) of your loan is currently 85.3% and PMI is required.

The PMI coverage has been reinstated and will continue without interruption.  Your monthly mortgage payment amount will be adjusted effective with the July 1, 2008 payment. 

We apologize for any inconvenience this error may have caused.  Please do not hesitate to contact us if you have any questions.

Sincerely,

MIP/PMI Administrator

Ouch!  Not only did they re-instate PMI after saying it was canceled, they didn't even bother to use the customer's name in the letter. 

The property is located in Pierce County.  My best guess is that the lender (BECU) decided it was in a declining market and at the very last minute, re-evaluated the loan to value based on that.    Generally, it is up to the servicer (the lender) whether or not the private mortgage insurance can be canceled.   This is the first time I've heard of PM being canceled and then reinstated.