A fixed-rate loan closed at $320,000 against an original value of $400,000. The amortization schedule shows the balance first reaching $312,000 in month 61. The borrower has never missed a payment and has not asked for anything. What must the servicer do in month 61?
Correct Answer
C) Automatically terminate PMI at 78 percent if current
Why this is correct: The Homeowners Protection Act (HPA) requires automatic termination of PMI at the 78% loan-to-value milestone if the borrower's payments are current. This applies regardless of the employee's role or workflow. Why the other choices are wrong: "Use the consumer-facing workflow as a reason to postpone the required compliance step" is wrong because workflow convenience does not override federal law. "Skip the rule because the consumer-facing workflow appears routine" is wrong because routine processes must still comply with mandatory PMI termination rules. "Assume HPA PMI is outside compliance review because no fee has been charged yet" is wrong because the termination requirement is based on the loan schedule, not on fee assessment. Exam tip: HPA compliance is not optional—when the schedule hits 78% and the borrower is current, PMI must be terminated.
Why This Is the Correct Answer
The correct response is "Automatically terminate PMI at 78 percent if current" because Lines 76-85; CFPB PMI cancellation page, automatic termination section.
Why the Other Options Are Wrong
Option A: Use the consumer-facing workflow as a reason to postpone the required compliance step.
Use the consumer-facing workflow as a reason to postpone the required compliance step. is not correct because it does not apply the rule tested by this file scenario.
Option B: Skip the rule because the consumer-facing workflow appears routine.
Skip the rule because the consumer-facing workflow appears routine. is not correct because it does not apply the rule tested by this file scenario.
Option D: Assume HPA PMI is outside compliance review because no fee has been charged yet.
Assume HPA PMI is outside compliance review because no fee has been charged yet. 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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