During a disclosure desk review, a compliance analyst encounters a HPA PMI Cancellation issue. Which response should identify which rule controls the file?
Correct Answer
A) Apply final termination at the midpoint when required
Why this is correct: The Homeowners Protection Act (HPA) governs private mortgage insurance (PMI) cancellation and termination. It establishes specific rules for borrower-requested cancellation, automatic termination, and final termination. The correct action during a disclosure desk review is to apply the HPA's final termination rule, which requires termination at the midpoint of the loan's amortization schedule when the borrower's equity reaches 22% (based on the original value) and other conditions are met. This is a core HPA compliance step. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because HPA rules apply to conventional PMI, not to government mortgage insurance (FHA, VA, USDA). "Delay the HPA PMI Cancellation step until a later licensing review instead of acting now" is wrong because HPA requirements must be applied during the appropriate servicing and disclosure reviews, not deferred. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because applying rules to an ineligible loan type (e.g., a government-insured loan) would be an error. Exam tip: Remember HPA has three distinct PMI termination paths: borrower-requested, automatic, and final termination at the midpoint.
Why This Is the Correct Answer
The correct response is "Apply final termination at the midpoint when required" because HPA has separate borrower-requested, automatic, and final PMI termination rules.
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 HPA PMI Cancellation step until a later licensing 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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