A borrower calls to ask when her mortgage insurance stops. She is current, the loan is fixed rate, and the schedule puts the balance at 78% of the original value in month 98. What is the servicer required to tell her?
Correct Answer
D) Automatically terminate PMI at 78 percent if current
The Homeowners Protection Act (HPA) establishes a clear federal rule for automatic PMI termination. This rule is not optional and applies based on the loan's scheduled amortization and the borrower's payment status, independent of external factors like processing speed or other approvals. Why this is correct: "Automatically terminate PMI at 78 percent if current" is the mandated action when the loan schedule reaches that point and the borrower is current. Why the other choices are wrong: "Apply the rule only after a regulator asks specifically about HPA PMI" is wrong because compliance is required proactively, not just upon inquiry. "Treat the rule as waived because all parties want the file to move faster" is wrong as the HPA rule cannot be waived for convenience. "Assume another jurisdiction approval automatically cures this file" is wrong because PMI termination is governed by federal law, not local approvals. Exam tip: The HPA's automatic termination is triggered by the *scheduled* amortization, not the actual balance, and requires the borrower to be 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 A: Apply the rule only after a regulator asks specifically about HPA PMI.
Apply the rule only after a regulator asks specifically about HPA PMI. is not correct because it does not apply the rule tested by this file scenario.
Option B: Treat the rule as waived because all parties want the file to move faster.
Treat the rule as waived because all parties want the file to move faster. is not correct because it does not apply the rule tested by this file scenario.
Option C: Assume another jurisdiction approval automatically cures this file.
Assume another jurisdiction approval automatically cures this file. 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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