Two loans reach the scheduled 78% point in the same month. One borrower is current, the other is 45 days delinquent. A servicer asks whether both, neither, or one of them terminates.
Correct Answer
C) Automatically terminate PMI at 78 percent if current
Why this is correct: The Homeowners Protection Act (HPA) requires automatic termination of PMI when the principal balance of the loan is first scheduled to reach 78% of the original property value, provided the borrower is current on payments. This is a mandatory, non-discretionary action for the servicer. Why the other choices are wrong: "Assume another jurisdiction approval automatically cures this file" is wrong because compliance with the HPA is a federal requirement and is not satisfied by approval from a state or other jurisdiction. "Handle HPA PMI with a sales script rather than the required file action" is wrong because a sales script is for communication, not a substitute for the legally required termination process. "Use the supervisory exam response as a reason to postpone the required compliance step" is wrong because exam guidance reinforces the law; it is not a basis for delay. Exam tip: Automatic termination at 78% is based on the original amortization schedule, not a new appraisal, 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: 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.
Option B: Handle HPA PMI with a sales script rather than the required file action.
Handle HPA PMI with a sales script rather than the required file action. is not correct because it does not apply the rule tested by this file scenario.
Option D: Use the supervisory exam response as a reason to postpone the required compliance step.
Use the supervisory exam response as a reason to postpone the required compliance step. 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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