A fixed-rate, nonconforming residential mortgage is properly designated a lender-defined high-risk loan under the Homeowners Protection Act. Its initial amortization schedule reaches 77% of original property value before the amortization midpoint. The borrower is current. At which scheduled LTV does the Act's special high-risk termination rule end borrower-paid PMI?
Correct Answer
D) 77% of original value
D. The special scheduled threshold is 77% of original value. The question specifies the lender-defined high-risk nonconforming category, not an ordinary non-high-risk mortgage. For this fixed-rate loan, use the initial amortization schedule rather than substituting the actual current balance or a new appraisal. Scope and exceptions: Do not extend this 77% rule to every loan described as risky. The category must be properly established. The separate amortization-midpoint protection also applies; here the scheduled 77% point occurs first. Source: High Risk Residential Mortgage Transactions: nonconforming loans — https://www.fdic.gov/consumer-compliance-examination-manual/v-5-homeowners-protection-act
Why This Is the Correct Answer
D. The special scheduled threshold is 77% of original value. The question specifies the lender-defined high-risk nonconforming category, not an ordinary non-high-risk mortgage. For this fixed-rate loan, use the initial amortization schedule rather than substituting the actual current balance or a new appraisal. Scope and exceptions: Do not extend this 77% rule to every loan described as risky. The category must be properly established. The separate amortization-midpoint protection also applies; here the scheduled 77% point occurs first.
Why the Other Options Are Wrong
Option A: 80% of original value upon request
It imports the ordinary request-based 80% rule.
Option B: 75% of original value
75% is not the stated statutory threshold.
Option C: 78% of original value
78% belongs to the ordinary automatic-termination framework.
Exam Tip
Identify the statutory high-risk category before choosing a PMI threshold.
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