A loan reaches its termination date while the borrower is one payment behind. She brings the account current on 14 March. When does the PMI requirement end?
Correct Answer
A) Automatically terminate PMI at 78 percent if current
The Homeowners Protection Act (HPA) mandates automatic termination of private mortgage insurance (PMI) when the loan's principal balance is first scheduled to reach 78% of the original property value, provided the borrower is current on payments. This rule is a core consumer protection to prevent unnecessary PMI costs. Why this is correct: "Automatically terminate PMI at 78 percent if current" directly follows the HPA's automatic termination requirement. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because government programs like FHA MIP have distinct, often non-cancellable, rules. "Ignore mortgage-insurance costs when comparing loan options" violates the obligation to provide accurate loan cost disclosures. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong as the HPA's PMI rules apply specifically to conventional loans, not all mortgage types. Exam tip: Remember the HPA's two paths: automatic termination at 78% (if current) and borrower-initiated cancellation at 80% (with additional requirements).
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 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: 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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