A borrower obtained a conventional loan with PMI three years ago. The current loan balance is $185,000 and the original property value was $250,000. A new appraisal shows the property is now worth $280,000. Under the Homeowners Protection Act, what action must the lender take?
Correct Answer
B) Cancel PMI only if the borrower requests it in writing
Under the Homeowners Protection Act, when LTV drops below 80% due to property appreciation (not just principal payments), the lender must cancel PMI upon borrower's written request, provided certain conditions are met including a new appraisal. Automatic cancellation only occurs at 78% LTV based on the original property value and scheduled payments.
Why This Is the Correct Answer
Under the Homeowners Protection Act, when LTV drops below 80% due to property appreciation (not just principal payments), the lender must cancel PMI upon borrower's written request, provided certain conditions are met including a new appraisal. Automatic cancellation only occurs at 78% LTV based on the original property value and scheduled payments.
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