A training deck tells new staff that PMI ends when the borrower asks and the loan-to-value is under 80%. A reviewer says the deck describes one route and leaves out another. What has been left out?
Correct Answer
A) Automatically terminate PMI at 78 percent if current
The Homeowners Protection Act (HPA) requires servicers to automatically terminate PMI coverage without borrower request when the principal balance is first scheduled to reach 78% of the original value, assuming the borrower is current. This procedure is not discretionary based on staff notes, fees, or timing of other loan actions. Why this is correct: "Automatically terminate PMI at 78 percent if current" is the legally required handling. Why the other choices are wrong: "Skip the rule because the staff training note appears routine" is wrong; the rule must be followed regardless of internal notes. "Assume HPA PMI is outside compliance review because no fee has been charged yet" is wrong; the rule applies based on the loan schedule, not fee assessment. "Close or renew first and decide later whether the rule applied" is wrong as termination must happen at the scheduled point. Exam tip: For PMI termination, 'current' typically means no payment more than 30 days past due as of the termination date.
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 B: Skip the rule because the staff training note appears routine.
Skip the rule because the staff training note appears routine. is not correct because it does not apply the rule tested by this file scenario.
Option C: Assume HPA PMI is outside compliance review because no fee has been charged yet.
Assume HPA PMI is outside compliance review because no fee has been charged yet. is not correct because it does not apply the rule tested by this file scenario.
Option D: Close or renew first and decide later whether the rule applied.
Close or renew first and decide later whether the rule applied. 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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