A borrower has paid an extra $200 a month for three years, so the actual balance hit 78% of the original value two years ahead of the amortization schedule. She asks the servicer to drop the PMI automatically. What governs the automatic termination date?
Correct Answer
B) Automatically terminate PMI at 78 percent if current
Why this is correct: Under the Homeowners Protection Act (HPA), the appropriate correction when a loan reaches the automatic PMI termination point (78% loan-to-value, borrower current) is to terminate the PMI coverage as required by law. Why the other choices are wrong: "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 fee imposition. "Close or renew first and decide later whether the rule applied" is wrong because delaying action violates the timely termination mandate. "Allow activity to continue while the applicable status problem remains unresolved" is wrong because continuing without correcting the PMI termination failure is non-compliant. Exam tip: Quality control flags for HPA should always lead to verifying the 78% threshold and current payment status, then terminating PMI if both are met.
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: 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.
Option C: Close or renew first and decide later whether the rule applied.
Close or renew first and decide later whether the rule applied. is not correct because it does not apply the rule tested by this file scenario.
Option D: Allow activity to continue while the applicable status problem remains unresolved.
Allow activity to continue while the applicable status problem remains unresolved. 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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