A mortgage file is paused during a secondary-market screen because of HPA PMI Termination. Which answer should identify which rule controls the file?
Correct Answer
C) Check payment history and property-value conditions
Why this is correct: The Homeowners Protection Act (HPA) governs Private Mortgage Insurance (PMI) termination. A key step in applying the correct rule is to verify the specific conditions for termination, which include checking the borrower's payment history and whether the property value meets the required threshold (e.g., the loan-to-value ratio is 80% or less). This factual check determines which termination rule (borrower-requested, automatic, or final) applies. Why the other choices are wrong: Treating government mortgage insurance as conventional PMI is wrong because government insurance (like FHA MIP) is governed by different rules, not the HPA. Ignoring mortgage-insurance costs when comparing loan options is wrong because providing accurate loan comparisons, including all costs, is a fundamental consumer protection duty. Applying PMI cancellation rules to a loan product outside the covered PMI rule is wrong because the HPA's PMI rules apply only to certain conventional loans; applying them to ineligible products (like FHA loans) is incorrect. Exam tip: For HPA PMI questions, first identify if it's a covered loan, then check the payment history and LTV conditions to determine the correct termination path.
Why This Is the Correct Answer
The correct response is "Check payment history and property-value conditions" 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: 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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