Before closing, the team discovers that a borrower asks to cancel PMI at the scheduled 80 percent point. What is the safest compliant answer?
Correct Answer
D) Cancel PMI if the written 80 percent request meets conditions
Why this is correct: The Homeowners Protection Act (HPA) mandates that a borrower can request PMI cancellation when the principal balance is scheduled to reach 80% of the original property value. The servicer must cancel the PMI if the borrower submits a written request and is current on payments. This is the direct legal requirement. Why the other choices are wrong: "Assume the PMI borrower requested cancellation condition is met because the borrower satisfied the separate anti-steering requirement" is wrong because anti-steering rules (under LO Comp) are unrelated to the HPA's PMI cancellation conditions. "Ignore mortgage-insurance costs when comparing loan options" is wrong as it would mislead the borrower about the true cost of the loan. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because the HPA applies to conventional loans with PMI, not to government-insured or other loan types. Exam tip: PMI cancellation is a right under federal law (HPA), not a matter of lender discretion, when the conditions are met.
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 A: Assume the PMI borrower requested cancellation condition is met because the borrower satisfied the separate anti-steering requirement.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
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 C: 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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