Homeowners Protection Act

Question 1

The bank has recently received complaints from mortgage loan borrowers that their private mortgage insurance (PMI) has been required for far too long. An investigation reveals that some customers with 30-year mortgage loans have had PMI required for 17 years. When drafting an action plan, what is the compliance officer’s BEST course of action?

A. Immediately terminate those customers’ PMI and refund the premiums paid past the midpoint of the mortgage term
B. Immediately terminate those customers’ PMI and refund the premiums after the time where the loan-to-value ratio fell below 80%
C. Nothing is necessary, as the bank and borrower agreed to PMI for the entire term of the loan
D. Immediately terminate those customers’ PMI if their home values have not fallen more than 10% of the value when the loans were originated

Answer 1

A. Immediately terminate those customers’ PMI and refund the premiums paid past the midpoint of the mortgage term

The Homeowners Protection Act requires termination of private mortgage insurance at the midpoint of the loan term (15 years for a 30-year loan). Therefore, PMI that has been in place for 17 years must immediately be terminated, and excess premiums for 2 years refunded to borrowers. This is true even if the customer had agreed to PMI for the entire term of the loan, and regardless of whether the value of the home had fallen more than 10% of the original value.

Question 2

If the borrower is current when the PMI loan-to-value ratio reaches 80%, what happens?

A. The PMI is automatically canceled
B. The PMI is canceled automatically if the borrower requests it
C. The PMI is canceled if the borrower requests it and an appraisal shows the property value has not declined
D. The PMI is canceled if the borrower requests it and an appraisal shows the property value has declined

Answer 2

C. The PMI is canceled if the borrower requests it and an appraisal shows the property value has not declined

The lender can require an appraisal, which must be paid for by the borrower.

Question 3

Once the PMI loan-to-value ratio has reached 78%, what happens?

A. The PMI is automatically canceled
B. The PMI is automatically canceled if the borrower is current
C. The PMI is canceled automatically if the borrower requests it
D. The PMI is canceled if the borrower requests it and an appraisal shows the property value has not declined

Answer 3

B. The PMI is automatically canceled if the borrower is current

Question 4

At the midway point, will the PMI be canceled if the borrower is not current?

Answer 4

Yes

The midway point is half of the mortage term. For a 30-year mortgage, the midway point is 15 years.

Question 5

Which of the following is true of disclosures required by the Homeowners Protection Act?

A. They are not required for adjustable-rate mortgages.
B. They inform borrowers about property taxes.
C. They relate to private mortgage insurance.
D. They are optional for lenders.

Answer 5

C. They relate to private mortgage insurance.

The disclosures required by the HPA include:
1) Initial disclosure: Lenders must inform borrowers at the time of loan application whether PMI will be required and provide an estimate of the cost.
2) Annual disclosure: Lenders must provide an annual notice to borrowers that explains their rights to cancel PMI and provides information on how to request cancellation.
3) Final disclosure: Lenders must notify borrowers when they have reached a certain threshold of equity in their home, at which point they may be eligible to cancel PMI.