A borrower made a large lump-sum payment that brought the actual balance to 80% of the original value years ahead of schedule, and asks in writing for cancellation. What route is she using?
Correct Answer
D) Cancel PMI at 80 percent if request conditions are met
Why this is correct: The Homeowners Protection Act (HPA) provides for borrower-requested cancellation of PMI once the principal balance of the loan is first scheduled to reach or actually reaches 80% of the original value, provided the borrower is current on payments. "Cancel PMI at 80 percent if request conditions are met" accurately describes this key borrower-initiated termination right under the HPA. Why the other choices are wrong: "Treat government mortgage insurance as conventional PMI" is wrong because HPA does not apply to government loans (FHA, VA, USDA). "Apply the anti-steering timing rule even though the file is testing Homeowners Protection Act" is wrong because anti-steering rules are part of the Ability-to-Repay/Qualified Mortgage framework, not HPA. "Apply PMI cancellation rules to a loan product outside the covered PMI rule" is wrong for the same reason; applying HPA to an ineligible loan type is incorrect. Exam tip: HPA has three paths: 1) Borrower request at 80% LTV (current payments), 2) Automatic termination at 78% LTV (scheduled, current), and 3) Final termination at midpoint of amortization. Know the differences.
Why This Is the Correct Answer
The correct response is "Cancel PMI at 80 percent if request conditions are met" 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: Apply the anti-steering timing rule even though the file is testing Homeowners Protection Act.
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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