In a pricing desk question, a licensing coordinator sees facts tied to Homeowners Protection Act PMI. What should the file reflect?
Correct Answer
D) Check payment history and property-value conditions
Why this is correct: The Homeowners Protection Act (HPA) governs the automatic termination and borrower-requested cancellation of Private Mortgage Insurance (PMI) on conventional residential loans. Key conditions for automatic termination include the borrower being current on payments and the loan balance reaching 78% of the original property value based on the amortization schedule. The correct answer, "Check payment history and property-value conditions," directly addresses these mandatory verification steps under the HPA. 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. "Treat the Homeowners Protection Act PMI review as complete because the file contains a related ability-to-repay note" is wrong because ATR and PMI cancellation are separate legal requirements. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong because HPA does not apply to all loan types (e.g., FHA loans). Exam tip: HPA's automatic termination is based on the original property value and amortization schedule, not a new appraisal, provided the borrower is current on payments.
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 PMI review as complete because the file contains a related ability-to-repay 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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