A borrower-facing employee is unsure what to do when a borrower asks to cancel PMI at the scheduled 80 percent point. What is the correct response?
Correct Answer
A) Cancel PMI if the written 80 percent request meets conditions
Why this is correct: The governing rule from the Homeowners Protection Act (HPA) is clear: when a borrower with a conventional loan reaches the scheduled 80% loan-to-value ratio, they may request PMI cancellation in writing. If the borrower is current on payments, the servicer must cancel the PMI. This is the compliant procedure. Why the other choices are wrong: "Resolve the PMI borrower requested cancellation issue with the income calculation exception that does not fit the facts" is wrong because income calculations are part of underwriting (ATR), not a factor in the HPA's PMI cancellation criteria. "Ignore mortgage-insurance costs when comparing loan options" is wrong as it omits a material cost from the loan comparison. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because the HPA does not govern FHA MIP or VA funding fees; applying its rules there would be incorrect. Exam tip: Remember that 'scheduled' 80% refers to the amortization schedule based on the original value, not an appraisal of current value.
Why This Is the Correct Answer
The correct response is "Cancel PMI if the written 80 percent request meets conditions" because Lines 76-85; CFPB PMI cancellation page, borrower-requested cancellation section.
Why the Other Options Are Wrong
Option B: Resolve the PMI borrower requested cancellation issue with the income calculation exception that does not fit the facts.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option C: 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
More Federal Laws Questions
A mortgage file is paused during a lock-desk handoff because of FCRA Adverse Action Notices. Which answer should identify which rule controls the file?
Before the team acts on a production meeting, a training manager must address SCRA Interest Rate Cap. Which response is most defensible?
Before the team acts on a production meeting, the MLO must address FCRA Adverse Action Notice. 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 mortgage team asks a quality-control reviewer about TRID Loan Estimate timing during a record-retention audit. Which answer should guide the file?
A mortgage team asks a branch supervisor about TILA APR and finance-charge rules during a renewal checklist. Which answer should guide the file?
A mortgage file is paused during a risk-control review because of TILA QM DTI Calculation. Which answer should choose the most defensible file action?
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?
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 branch onboarding review raises a question about Fair Housing Act compliance. Which action should the quality-control reviewer recommend?
Next Question
Before the loan advances, a quality-control reviewer must resolve a TILA advertising issue during a TILA advertising review. What should happen?