A homeowner refinances a principal residence in 2026 with a new appraisal of $455,000, having bought it in 2014 for $240,000. If the lender relies on the new appraisal to approve the refinance, what is the original value for PMI cancellation under the Homeowners Protection Act?
Correct Answer
A) Original value is the $455,000 appraisal relied upon for this refinance
A. Original value for this refinance is $455,000. For a principal-residence refinance, the HPA definition uses the appraisal relied upon to approve that refinance. The 2014 purchase price is not combined with the new appraisal under a lesser-of test for this transaction. Scope and exceptions: Identifying original value does not by itself establish cancellation eligibility. Borrower-paid PMI coverage and the other applicable conditions still matter; investor cancellation based on current value is a separate route. Source: 12 USC 4901(12) — https://www.govinfo.gov/content/pkg/USCODE-2024-title12/pdf/USCODE-2024-title12-chap49-sec4901.pdf
Why This Is the Correct Answer
A. Original value for this refinance is $455,000. For a principal-residence refinance, the HPA definition uses the appraisal relied upon to approve that refinance. The 2014 purchase price is not combined with the new appraisal under a lesser-of test for this transaction. Scope and exceptions: Identifying original value does not by itself establish cancellation eligibility. Borrower-paid PMI coverage and the other applicable conditions still matter; investor cancellation based on current value is a separate route.
Why the Other Options Are Wrong
Option B: Original value is the lesser of the two, so the $240,000 figure governs
It incorrectly applies a purchase-price comparison.
Option C: Original value is the $240,000 paid in 2014, as the first purchase price
It treats original value as permanently tied to the earliest purchase.
Option D: Original value is recalculated each year as the property is reassessed
Annual tax reassessments do not reset this statutory baseline.
Exam Tip
For HPA original value, identify the transaction being insured—not simply the property’s first purchase.
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