A servicer tells a borrower that PMI can only ever come off automatically, and that requests are not accepted. A compliance analyst reviews the response. What has been left out?
Correct Answer
C) Cancel PMI at 80 percent if request conditions are met
Why this is correct: The Homeowners Protection Act (HPA) provides that a borrower has the right to request cancellation of PMI once the principal balance of the loan is first scheduled to reach 80% of the original property value, based on the amortization schedule, provided the borrower is current and meets other conditions. Why the other choices are wrong: Treating government mortgage insurance as conventional PMI is wrong because government insurance programs (e.g., FHA, VA) have their own termination rules, not the HPA's 80% rule. Ignoring mortgage-insurance costs when comparing loan options is wrong because providing accurate cost comparisons is a fundamental duty under fair lending and disclosure laws. Applying PMI cancellation rules to a loan product outside the covered PMI rule is wrong because the HPA's cancellation rules apply only to certain conventional residential mortgages, not to all loan types. Exam tip: For HPA, remember the 80% threshold for borrower-requested cancellation is based on the original value and amortization schedule, not an appraisal.
Why This Is the Correct Answer
The correct response is "Cancel PMI at 80 percent if request conditions are met" 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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