A servicing platform is configured to review PMI only when a borrower calls about it. Loans that reach the scheduled 78% point without a call keep paying the premium. What does the configuration miss?

Correct Answer

B) Automatically terminate PMI at 78 percent if current

Why this is correct: The Homeowners Protection Act (HPA) governs Private Mortgage Insurance (PMI). A core requirement is that servicers must automatically terminate PMI on the date the principal balance of the loan is first scheduled to reach 78 percent of the original value of the property securing the loan, provided the borrower is current on their payments. The compliance review finding that the loan schedule has reached this automatic termination point triggers this specific duty. The correct action is to "Automatically terminate PMI at 78 percent if current." Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because government mortgage insurance (like FHA MIP or VA funding fees) is not governed by the HPA's PMI cancellation rules; it has its own, different requirements. "Ignore mortgage-insurance costs when comparing loan options" is wrong because MLOs must provide accurate Loan Estimates and Closing Disclosures that include all costs, including mortgage insurance, for proper comparison; ignoring them would violate disclosure rules. "Assume the PMI automatic termination condition is met because the borrower satisfied the separate rate-lock requirement" is wrong because the automatic termination under the HPA is based on the amortization schedule reaching 78 percent loan-to-value and the borrower's payment status, not on unrelated loan terms like a rate lock. Exam tip: Remember the HPA's two key PMI termination triggers: automatic at 78% LTV (if current) and borrower-initiated request at 80% LTV (if current and with a good payment history). Government insurance is a different topic.