A borrower takes lender-paid mortgage insurance at 90% loan-to-value in exchange for a rate 0.25 percentage points higher, then reaches 78% two years later. Does reaching 78% loan-to-value entitle the borrower to removal of that rate premium under the Homeowners Protection Act?
Correct Answer
D) No: the HPA does not require removal of the LPMI rate premium
D. Reaching 78% does not create an HPA right to reduce the LPMI rate. HPA borrower-paid cancellation and termination rules do not apply to lender-paid mortgage insurance. A rate premium incorporated into loan pricing is not a separate borrower-paid PMI payment. Scope and exceptions: LPMI terminates when the mortgage is refinanced, paid off or otherwise terminated. This answer does not prohibit an agreed modification or decide rights under another law or contract. Source: V–5.2 exclusions and V–5.5 LPMI disclosures; 12 USC 4905 — https://www.fdic.gov/system/files/2024-06/v-5-1.pdf
Why This Is the Correct Answer
D. Reaching 78% does not create an HPA right to reduce the LPMI rate. HPA borrower-paid cancellation and termination rules do not apply to lender-paid mortgage insurance. A rate premium incorporated into loan pricing is not a separate borrower-paid PMI payment. Scope and exceptions: LPMI terminates when the mortgage is refinanced, paid off or otherwise terminated. This answer does not prohibit an agreed modification or decide rights under another law or contract.
Why the Other Options Are Wrong
Option A: The borrower may request the 0.25% removed at 80% of original value
The borrower-paid cancellation route does not remove this rate premium.
Option B: The lender must refund 2 years of the premium it paid at closing
Reaching this LTV does not create the proposed two-year refund.
Option C: The rate drops by 0.25% automatically once 78% is reached
There is no automatic HPA rate reduction for LPMI at 78%.
Exam Tip
An LTV milestone does not convert lender-paid insurance into cancellable borrower-paid PMI.
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