In a closing-readiness check, a disclosure specialist sees facts tied to Private Mortgage Insurance. What should the file reflect?
Correct Answer
A) Include mortgage-insurance costs in product comparison
Why this is correct: The core concept is that Private Mortgage Insurance (PMI) is a significant cost component that varies by loan type, loan-to-value ratio (LTV), and specific program rules. A proper product comparison for a borrower must include all costs that affect the payment and the annual percentage rate (APR). Therefore, including mortgage-insurance costs in the product comparison is essential for accurate disclosure and informed borrower decision-making. Why the other choices are wrong: The choice "Apply annual MIP rules to a conventional loan without checking the product" is wrong because MIP (Mortgage Insurance Premium) is specific to FHA loans; applying its rules to a conventional PMI loan is incorrect. The choice "Apply FHA mortgage-insurance cancellation rules to a conventional PMI scenario" is wrong because FHA and conventional loans have distinct mortgage insurance rules, especially regarding cancellation. The choice "Ignore borrower-paid versus lender-paid MI when comparing payment and rate" is wrong because the payment method (borrower-paid monthly premium vs. lender-paid via a higher rate) directly impacts the borrower's monthly payment and overall loan cost, so ignoring it leads to an inaccurate comparison. Exam tip: Always remember that PMI is not a one-size-fits-all cost; its structure and rules are tied to the specific loan program (e.g., conventional vs. FHA).
Why This Is the Correct Answer
The correct response is "Include mortgage-insurance costs in product comparison" because PMI options affect borrower cost and depend on loan type, LTV, and mortgage-insurance rules.
Why the Other Options Are Wrong
Option B: Apply annual MIP rules to a conventional loan without checking the product.
This choice is a tempting shortcut, but it conflicts with PMI and mortgage-insurance options because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option C: Apply FHA mortgage-insurance cancellation rules to a conventional PMI scenario.
This choice is not the best answer because it applies the wrong file step for PMI and mortgage-insurance options; the governing rule is tested by the correct option.
Option D: Ignore borrower-paid versus lender-paid MI when comparing payment and rate.
This choice is a tempting shortcut, but it conflicts with PMI and mortgage-insurance options because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
PMI options and mortgage-insurance costs: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For PMI and mortgage-insurance options questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
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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