The termination date arrives and the borrower is two payments behind. A servicing supervisor asks whether the PMI simply stays in place from now on. What does the statute provide?
Correct Answer
C) Automatically terminate PMI at 78 percent if current
Why this is correct: The Homeowners Protection Act (HPA) mandates automatic termination of Private Mortgage Insurance (PMI) for most residential mortgages once the loan balance reaches 78% of the original value, provided the borrower is current on payments. This is a key, specific rule under the HPA that must be implemented in company policy. 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 or VA loans. "Treat the HPA PMI Cancellation review as complete because the file contains a related appraisal review note" is wrong because an appraisal review note does not confirm the automatic termination criteria (e.g., 78% LTV, current status) are met. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because applying HPA rules to non-covered loans (e.g., government-insured loans) is incorrect and non-compliant. Exam tip: HPA has three paths: borrower-requested at 80%, automatic at 78% if current, and final termination at midpoint. The automatic rule is a core testable item.
Why This Is the Correct Answer
The correct response is "Automatically terminate PMI at 78 percent if current" 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: Treat the HPA PMI Cancellation review as complete because the file contains a related appraisal review note.
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
Before the team acts on a production meeting, a training manager must address SCRA Interest Rate Cap. Which response is most defensible?
A team member asks about RESPA Kickbacks and Referrals in an investor-delivery review while trying to confirm the rule-based response. Which response should the loan team use?
During a disclosure desk review, the loan team encounters an RESPA Servicing Transfer issue. Which response should avoid a shortcut that would misapply the rule?
A disciplinary-risk review raises a question about TILA APR and finance-charge rules. Which action should the renewal specialist recommend?
An MLO is reviewing procedures for a case where a compliance analyst asks why covered mortgage application data is collected. What is the proper handling?
A consumer complaint response raises a question about GLBA privacy requirements. Which action should the state compliance officer recommend?
Before the team acts on a branch training session, a policy analyst must address RESPA Servicing Transfer Notice. Which response is most defensible?
A training manager is resolving RESPA Referral Fees during an internal audit sample. Which action best fits the rule?
An operations lead is resolving ECOA Prohibited Discrimination Bases during a loan-team coaching session. Which action best fits the rule?
In a file escalation meeting, a disclosure specialist sees facts tied to TILA Closing Disclosure. What should the file reflect?
People Also Study
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
A borrower-facing employee is unsure what to do when an MLO wants to pull a consumer report for curiosity before an application purpose exists. What is the correct response?
Next Question
A mortgage operations checklist raises a question about TILA advertising. Which action should the state compliance officer recommend?