During intake, a borrower asks to cancel PMI at the scheduled 80 percent point. What is the best compliant response?
Correct Answer
C) Cancel PMI if the written 80 percent request meets conditions
Why this is correct: The governing concept is from the Homeowners Protection Act (HPA). For conventional loans, a borrower has the right to request cancellation of Private Mortgage Insurance (PMI) once the principal balance is scheduled to reach 80% of the original value, provided the borrower is current and meets other statutory conditions. The correct response is to cancel PMI if the written 80 percent request meets conditions. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because FHA, VA, and USDA insurance are governed by different rules, not the HPA. "Ignore mortgage-insurance costs when comparing loan options" is wrong because Regulation Z (TRID) requires clear disclosure of these costs, and they are a key part of loan comparison. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because the HPA's PMI cancellation rules apply specifically to conventional residential mortgages, not all loan products. Exam tip: For PMI cancellation, remember the key triggers: automatic termination at 78% LTV (based on original value) and borrower-requested cancellation at 80%. The borrower's request must be in writing.
Why This Is the Correct Answer
The correct response is "Cancel PMI if the written 80 percent request meets conditions" because Lines 76-85; CFPB PMI cancellation page, borrower-requested cancellation section.
Why the Other Options Are Wrong
Option A: Treat government mortgage insurance as conventional PMI.
Treat government mortgage insurance as conventional PMI. is not correct because it does not apply the rule tested by this file scenario.
Option B: Ignore mortgage-insurance costs when comparing loan options.
Ignore mortgage-insurance costs when comparing loan options. is not correct because it does not apply the rule tested by this file scenario.
Option D: Apply PMI cancellation rules to a loan product outside the covered PMI rule.
Apply PMI cancellation rules to a loan product outside the covered PMI rule. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
Homeowners Protection Act PMI rules: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to Homeowners Protection Act PMI rules; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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