A mortgage operations checklist raises a question about Homeowners Protection Act PMI rules. Which action should the compliance manager recommend?
Correct Answer
D) Check payment history and property-value conditions
Why this is correct: The Homeowners Protection Act (HPA) governs the cancellation and termination of private mortgage insurance (PMI) on conventional loans. Key conditions for automatic termination include the borrower being current on payments and the loan-to-value ratio reaching 78% based on the original amortization schedule. Therefore, the compliant action is to "Check payment history and property-value conditions" to verify if these HPA triggers have been met. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because HPA rules apply to conventional PMI, not to government insurance like FHA MIP or VA funding fees, which have separate rules. "Treat the HPA review as complete because of a closing disclosure note" is wrong because a note in a file does not substitute for the factual analysis of payment history and LTV required by the HPA. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because HPA has specific coverage; applying its rules to ineligible loans (e.g., FHA loans) is incorrect. Exam tip: HPA = Private Mortgage Insurance on conventional loans. Always check two things for automatic termination: payment history (must be current) and the amortized LTV (must reach 78%).
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: Treat the Homeowners Protection Act review as complete because the file contains a related closing disclosure note.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option C: 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
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