A branch manager asks about a loan file because the loan schedule reaches the automatic PMI termination point. What should happen?
Correct Answer
A) Automatically terminate PMI at 78 percent if current
Why this is correct: The Homeowners Protection Act (HPA) mandates automatic termination of Private Mortgage Insurance (PMI) when the loan balance reaches 78% of the original property value, provided the borrower is current on payments. This is a federal requirement, not a discretionary action. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because government-backed loans (like FHA) have different mortgage insurance rules and are not subject to the HPA's PMI termination provisions. "Delay the PMI automatic termination step until a later document-retention review instead of acting now" is wrong because the HPA requires termination at the specific point, not at a later administrative review. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because applying HPA rules to ineligible loans (e.g., FHA, VA) would be incorrect and non-compliant. Exam tip: Remember the HPA's automatic termination trigger: 78% loan-to-value ratio, borrower current.
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: Delay the PMI automatic termination step until a later document-retention 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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