Before the team acts on a production meeting, the loan team must address Homeowners Protection Act PMI. Which response is most defensible?
Correct Answer
D) Check payment history and property-value conditions
Why this is correct: The Homeowners Protection Act (HPA) governs the cancellation and termination of private mortgage insurance (PMI) for conventional loans. Its rules are fact-specific, requiring verification of key conditions before any action. The correct action, "Check payment history and property-value conditions," directly addresses the HPA's core requirements for both borrower-requested and automatic termination. For example, borrower-requested cancellation typically requires the borrower to be current on payments and have sufficient equity based on the original property value or a current appraisal. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because government-backed loans (FHA, VA, USDA) are explicitly excluded from HPA PMI rules; their mortgage insurance follows different statutes. "Use the income calculation standard to decide the Homeowners Protection Act PMI issue before confirming the trigger facts" is wrong because HPA termination hinges on payment history and loan-to-value ratios, not underwriting income calculations. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong as it would misapply HPA to loans it doesn't govern, such as government-insured loans or lender-paid MI structures. Exam tip: For HPA questions, remember it applies only to conventional, residential loans with PMI. The path to termination always depends on verifying the borrower's payment status and the property's equity position.
Why This Is the Correct Answer
The correct response is "Check payment history and property-value conditions" because HPA has separate borrower-requested, automatic, and final PMI termination rules.
Why the Other Options Are Wrong
Option A: 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 B: Use the income calculation standard to decide the Homeowners Protection Act PMI issue before confirming the trigger facts.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option C: 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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