A borrower writes in at the point his balance is scheduled to reach 80% of the original value, asking for cancellation, and his payment record is clean. A new servicing agent says nothing happens until 78%. Who is right, and on what basis?
Correct Answer
D) Automatically terminate PMI at 78 percent if current
Why this is correct: The Homeowners Protection Act (HPA) mandates that PMI be automatically terminated once the loan's scheduled balance reaches 78% of the original property value and the borrower is current. This is a specific federal requirement. Why the other choices are wrong: "Treat prior mortgage experience as a substitute for the required compliance condition" is wrong because individual experience does not replace statutory obligations. "Use a generic national checklist instead of the requirement in this staff training note" is wrong because checklists must incorporate the actual HPA rule, not generic alternatives. "Document that HPA PMI was reviewed, but take no required corrective action" is wrong because documentation alone is insufficient; the required action is termination. Exam tip: For HPA questions, focus on the 78% threshold and the borrower's current payment status as the triggers for automatic termination.
Why This Is the Correct Answer
The correct response is "Automatically terminate PMI at 78 percent if current" because Lines 76-85; CFPB PMI cancellation page, automatic termination section.
Why the Other Options Are Wrong
Option A: Treat prior mortgage experience as a substitute for the required compliance condition.
Treat prior mortgage experience as a substitute for the required compliance condition. is not correct because it does not apply the rule tested by this file scenario.
Option B: Use a generic national checklist instead of the requirement in this staff training note.
Use a generic national checklist instead of the requirement in this staff training note. is not correct because it does not apply the rule tested by this file scenario.
Option C: Document that HPA PMI was reviewed, but take no required corrective action.
Document that HPA PMI was reviewed, but take no required corrective action. 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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