A servicer proposes basing PMI termination on the outstanding balance shown on the monthly statement rather than on the initial amortization schedule. On a loan with extra payments the two differ by fourteen months. Which does the statute use for automatic termination?
Correct Answer
B) Automatically terminate PMI at 78 percent if current
Why this is correct: The Homeowners Protection Act (HPA) mandates specific rules for terminating Private Mortgage Insurance (PMI). One key rule is the automatic termination of PMI once the loan balance reaches 78% of the original property value, provided the borrower is current on payments. This is a core, non-discretionary requirement under the HPA that a compliance analyst must apply. Why the other choices are wrong: "Assume the Homeowners Protection Act condition is met because the borrower satisfied the separate consumer complaint requirement" is wrong because the HPA's PMI termination rules are based on loan-to-value ratios and payment history, not on the filing of a consumer complaint. "Ignore mortgage-insurance costs when comparing loan options" is wrong because mortgage insurance is a material cost that must be disclosed and considered in loan comparisons under TILA and other rules. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because the HPA's PMI rules apply only to certain residential mortgage transactions; applying them to an uncovered product (like a commercial loan) would be incorrect. Exam tip: Remember the HPA's three PMI termination triggers: borrower-requested at 80% LTV, automatic at 78% LTV if current, and final termination at the midpoint of the amortization schedule.
Why This Is the Correct Answer
The correct response is "Automatically terminate PMI at 78 percent if current" because HPA has separate borrower-requested, automatic, and final PMI termination rules.
Why the Other Options Are Wrong
Option A: Assume the Homeowners Protection Act condition is met because the borrower satisfied the separate consumer complaint requirement.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
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
More Federal Laws Questions
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