A processor asks how to handle a file where a borrower asks to cancel PMI at the scheduled 80 percent point. Which response is most accurate?
Correct Answer
A) Cancel PMI if the written 80 percent request meets conditions
Why this is correct: The Homeowners Protection Act (HPA) provides two main paths for PMI cancellation: automatic termination at 78% of the original value and borrower-requested cancellation at 80%. For borrower-requested cancellation, the law requires a written request from the borrower and that the borrower be current on payments. The original explanation correctly anchors that if these statutory conditions are met at the scheduled 80% point, the PMI must be canceled. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because FHA, VA, and USDA mortgage insurance premiums are governed by different rules, not the HPA's PMI cancellation provisions. "Delay the PMI borrower requested cancellation step until a later ability-to-repay review instead of acting now" is wrong because the HPA's timing and conditions are specific; a separate underwriting review is not a lawful reason to delay a compliant cancellation request. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because, as above, the HPA rules apply to conventional loans with PMI, not to government-insured loans. Exam tip: For PMI questions, remember the two key percentages: borrower can request at 80% (if current and in writing), and it terminates automatically at 78% (if current).
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: 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 C: Delay the PMI borrower requested cancellation step until a later ability-to-repay review instead of acting now.
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
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