A record-retention audit raises a question about Homeowners Protection Act PMI rules. Which action should the sponsorship reviewer recommend?
Correct Answer
C) Check payment history and property-value conditions
Why this is correct: The Homeowners Protection Act (HPA) governs private mortgage insurance (PMI) cancellation and termination. A key requirement for automatic termination is that the borrower's payment history must be current, and the loan must have reached the termination date based on the original amortization schedule (typically when the principal balance reaches 78% of the original value). Therefore, the correct action, "Check payment history and property-value conditions," directly addresses the factual prerequisites under the HPA. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because government insurance (like FHA MIP) is governed by different statutes and is not subject to HPA's PMI rules. "Ignore mortgage-insurance costs when comparing loan options" is wrong as it relates to disclosure, not the audit question about HPA retention rules. "Use the flood insurance standard to decide the Homeowners Protection Act issue before confirming the trigger facts" is wrong because flood insurance (NFIP) is a completely separate requirement; using its standard for an HPA issue is incorrect and bypasses the necessary factual check. Exam tip: HPA termination hinges on two key facts: a good payment history and the loan reaching the specified amortization threshold. Always verify both.
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: 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: Use the flood insurance standard to decide the Homeowners Protection Act 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.
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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