A branch manager asks about a loan file because a borrower asks to cancel PMI at the scheduled 80 percent point. What should happen?
Correct Answer
C) Cancel PMI if the written 80 percent request meets conditions
Why this is correct: Under the Homeowners Protection Act (HPA), a borrower has the right to request cancellation of Private Mortgage Insurance (PMI) once the loan's principal balance is scheduled to reach 80% of the original property value. This request must be in writing, and the borrower must be current on payments. If these conditions are met, the servicer must cancel the PMI. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because government-backed loans (FHA, VA, USDA) have their own distinct mortgage insurance rules and are not subject to the HPA's PMI cancellation procedures. "Ignore mortgage-insurance costs when comparing loan options" is wrong and violates both good lending practice and disclosure requirements; costs must be clearly presented. "Treat the PMI borrower requested cancellation review as complete because the file contains a related servicing transfer note" is wrong because a servicing transfer does not automatically satisfy the HPA's specific conditions for cancellation; the review must be based on the statutory criteria. Exam tip: The HPA's borrower-requested cancellation is not automatic; it requires the borrower to act by submitting a written request.
Why This Is the Correct Answer
The correct response is "Cancel PMI if the written 80 percent request meets conditions" because Lines 76-85; CFPB PMI cancellation page, borrower-requested cancellation section.
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: Treat the PMI borrower requested cancellation review as complete because the file contains a related servicing transfer note.
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
More Federal Laws Questions
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