A borrower compares a conventional principal-residence mortgage with borrower-paid PMI covered by the Homeowners Protection Act and an FHA loan with annual MIP. Which insurance is subject to the HPA cancellation and termination protections?
Correct Answer
A) The covered conventional borrower-paid PMI, not FHA MIP
A. The HPA protections apply to the specified conventional borrower-paid PMI. Requested cancellation at 80% of original value has additional conditions, including a written request and satisfactory payment and property-related requirements. The usual automatic trigger is the scheduled 78% date, with payments current. FHA premiums follow separate program rules. Scope and exceptions: Additional principal payments can support an earlier cancellation request; reaching an actual 78% balance early is not the same as reaching the scheduled automatic-termination date. Lender-paid coverage and other excluded loans require separate analysis. Source: Requested cancellation and automatic termination — https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/
Why This Is the Correct Answer
A. The HPA protections apply to the specified conventional borrower-paid PMI. Requested cancellation at 80% of original value has additional conditions, including a written request and satisfactory payment and property-related requirements. The usual automatic trigger is the scheduled 78% date, with payments current. FHA premiums follow separate program rules. Scope and exceptions: Additional principal payments can support an earlier cancellation request; reaching an actual 78% balance early is not the same as reaching the scheduled automatic-termination date. Lender-paid coverage and other excluded loans require separate analysis.
Why the Other Options Are Wrong
Option B: The FHA MIP, because government insurance is canceled on request
FHA insurance is not canceled merely on request under the HPA.
Option C: Neither: mortgage insurance runs for the life of the loan in both cases
It wrongly denies the stated PMI protections.
Option D: Both, once either loan reaches 78% of the original property value
It incorrectly applies the HPA trigger to FHA premiums.
Exam Tip
Identify the insurance type before applying a cancellation threshold.
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