A borrower writes asking for PMI to be cancelled. His balance is scheduled to reach 80% of the original value next month and he has not missed a payment in four years. What has to be satisfied for cancellation?
Correct Answer
B) Cancel PMI at 80 percent if request conditions are met
Why this is correct: The Homeowners Protection Act (HPA) provides specific rules for terminating private mortgage insurance (PMI). For borrower-requested termination, one key condition is that the loan-to-value ratio must be 80% or less based on the original property value. The correct answer, "Cancel PMI at 80 percent if request conditions are met," directly references this rule. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because HPA rules for PMI termination do not apply to government mortgage insurance (like FHA MIP or VA funding fees). "Use the reverse-mortgage occupancy standard to decide the HPA PMI Termination issue before confirming the trigger facts" is wrong because HPA has its own specific occupancy and other factual requirements for PMI termination, unrelated to reverse mortgage rules. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because HPA applies only to residential mortgage transactions with PMI, not to all loan products. Exam tip: For HPA PMI questions, first identify if it's a conventional loan with PMI. Key numbers are 78% (automatic termination) and 80% (borrower-requested).
Why This Is the Correct Answer
The correct response is "Cancel PMI at 80 percent if request conditions are met" because HPA has separate borrower-requested, automatic, and final PMI termination rules.
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 C: Use the reverse-mortgage occupancy standard to decide the HPA PMI Termination issue before confirming the trigger facts.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
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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