Before the team acts on a servicing handoff check, an audit analyst must address Homeowners Protection Act PMI. Which response is most defensible?
Correct Answer
C) Cancel PMI at 80 percent if request conditions are met
Why this is correct: The Homeowners Protection Act (HPA) governs the cancellation and termination of private mortgage insurance (PMI) on conventional residential mortgage loans. A key provision allows a borrower to request cancellation once the principal balance of the loan is first scheduled to reach or actually reaches 80 percent of the original property value, provided the borrower is current and meets other conditions. The correct answer, "Cancel PMI at 80 percent if request conditions are met," accurately reflects this borrower-requested cancellation rule. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because HPA rules apply to private mortgage insurance (PMI), not to government insurance like FHA MIP or VA funding fees. "Use the flood insurance standard to decide the Homeowners Protection Act PMI issue before confirming the trigger facts" is incorrect because flood insurance (NFIP) is a separate requirement unrelated to PMI cancellation triggers. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is non-compliant, as HPA applies specifically to conventional loans with PMI. Exam tip: HPA has three paths: borrower request at 80% LTV, automatic termination at 78% LTV, and final termination at midpoint of amortization. Know which trigger applies to which scenario.
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 B: Use the flood insurance standard to decide the Homeowners Protection Act PMI 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
More Federal Laws Questions
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