SAFE MLO test · Most missed · Episode 9

PMI on a Rental Home

2:07

The transcript is below. The full episode plays in the EstatePass MLO dashboard.

Chapters

0:00The question
0:33The numbers
0:54The gate
1:13The answers
1:48Recap

In short

The Homeowners Protection Act gives PMI cancellation rights only on a loan for the borrower's principal residence. There, the borrower may ask to cancel at 80% of the original value, PMI ends automatically at 78% if the loan is current, and it ends for good at the midpoint of the term. A rental house is not the borrower's home, so the Act never applies; a lender or investor may still cancel under its own policy.

The Act covers PMI on the borrower's principal residence. Rentals are outside it.
80% of original value: the borrower may ask to cancel. 78%: it ends automatically.
Midpoint of the term: final termination, if the loan is current.

Transcript

0:00The question

In our practice data, 12 of 15 people missed this one. Ten of them picked the same answer, and it has a real number in it. An investor owns three rental houses, each bought with 10 percent down and private mortgage insurance. Does the Homeowners Protection Act make the lender cancel that insurance? Pause. Which answer would you pick?

0:33The numbers

Start with the numbers people remember. At 80 percent of the original value, the borrower can ask to cancel PMI. At 78 percent, it ends automatically, as long as the loan is current. And at the midpoint of the loan term, it ends for good, if the loan is current.

0:54The gate

But every one of those rights sits behind one gate. The Act covers a loan on the borrower’s principal residence. A rental house is not her home, so the Act never starts. The lender or investor may still have its own policy. The law does not require it.

1:13The answers

Now the answers. B: once the balance passes 78 percent. The right number, for the wrong property. Out. A: they are single-family houses. Single-family is not enough. It has to be the borrower’s home. Out. C: once each loan is seasoned and current. Payment history matters only after the Act applies. Out. That leaves D: the Act covers a principal residence only.

1:48Recap

Home first, then the numbers: 80 to ask, 78 automatic, midpoint final. Next: when does the rescission clock start? Subscribe so you catch it.

Sources

Homeowners Protection Act of 1998, 12 U.S.C. 4901–4910
EstatePass question bank: mlo-national-know-pmi-scope-01

Independent study material. EstatePass is not affiliated with NMLS or CSBS, and nothing here is legal advice. Any lenders and borrowers in our episodes are fictional.