Homeowners Protection Act Quiz
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Questions and Answers

What is the maximum time frame within which a lender must terminate PMI after a borrower's request and fulfillment of conditions?

  • 60 days
  • 90 days
  • 30 days (correct)
  • 45 days

Which condition does NOT need to be fulfilled for a borrower to request PMI cancellation?

  • Current on the mortgage
  • Good payment history for the last 36 months (correct)
  • Principal balance at 80 percent of original value
  • Written cancellation request

What does the Homeowners Protection Act prohibit regarding borrower-paid PMI?

  • Variable interest rates
  • Permanent PMI coverage (correct)
  • Early termination fees
  • Fixed PMI rates

When does PMI automatically terminate according to the amortization schedule?

<p>At 78 percent LTV (D)</p> Signup and view all the answers

Which of the following is a requirement for PMI termination on high-risk loans?

<p>Category-specific termination requirements (D)</p> Signup and view all the answers

Which value determines the original value for PMI cancellation purposes?

<p>The lower sales price or appraised value for purchases (B)</p> Signup and view all the answers

What must a borrower provide to demonstrate that their property value hasn't declined?

<p>Evidence established in advance (C)</p> Signup and view all the answers

What is NOT a typical requirement for PMI cancellation requests from the borrower?

<p>The borrower must apply through a formal application process (A)</p> Signup and view all the answers

When must PMI on a conforming high-risk loan be terminated if the borrower is current on the loan?

<p>On the first day of the month following the midpoint of the loan’s amortization schedule (A)</p> Signup and view all the answers

What is the PMI termination threshold for lender-defined high-risk loans based on the amortization schedule?

<p>When the principal balance reaches 77 percent of the original value (D)</p> Signup and view all the answers

What is required to be provided to borrowers when PMI is needed for non-high-risk fixed-rate mortgages?

<p>A disclosure of the right to request cancellation of PMI (D)</p> Signup and view all the answers

How does Lender Paid Mortgage Insurance (LPMI) differ from Borrower Paid Mortgage Insurance (BPMI)?

<p>LPMI can only be terminated upon refinancing or paying off the mortgage (A)</p> Signup and view all the answers

What does the Dodd-Frank Act establish in relation to borrower protections?

<p>Creation of a federal agency to enforce consumer protection laws (C)</p> Signup and view all the answers

Which provision is NOT included when a lender discloses information on LPMI to a borrower?

<p>LPMI typically results in a lower payment than BPMI (B)</p> Signup and view all the answers

What must lenders provide when PMI is required for adjustable-rate mortgage transactions?

<p>Updated notices of LTV thresholds for PMI termination (D)</p> Signup and view all the answers

At what LTV ratio does PMI automatically terminate for non-high-risk fixed-rate mortgage transactions?

<p>At 78 percent of the original value (B)</p> Signup and view all the answers

What happens to PMI if a borrower is not current on the loan at the midpoint of the amortization schedule?

<p>PMI stops only when the borrower becomes current (D)</p> Signup and view all the answers

What rule influences how mortgage loan originators interact with borrowers?

<p>TILA-RESPA Integrated Disclosure Rule (TRID) (D)</p> Signup and view all the answers

Flashcards

HPA (Homeowners Protection Act)

A 1998 law that helps homeowners cancel private mortgage insurance (PMI).

PMI Cancellation Conditions

Requirements for lenders to cancel PMI, including loan balance reaching 80% of original value, good payment history, and no late payments.

80% Loan-to-Value (LTV)

The point at which PMI can be canceled if all other conditions are met.

Original Value

The value of the property at the time the loan originated, typically based on the lower of the sales price or appraised value.

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High-Risk Loans

Loans that don't automatically terminate PMI at 78% or 80% LTV; specific PMI termination requirements apply.

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Automatic PMI Cancellation

PMI terminates automatically when the loan balance reaches 78%, provided the borrower is current on the mortgage.

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Conforming Loans

Loans with a balance that doesn't exceed Freddie Mac and Fannie Mae's limits.

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Good Payment History

No late payments (generally no payments over 30 days late) in the past 24 months is crucial for PMI cancellation.

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PMI Termination (High-Risk Loans)

PMI on high-risk loans terminates when the loan balance reaches 77% of the original property value.

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PMI Termination (Conforming Loans)

PMI on non-high-risk loans terminates when the loan balance reaches 78% of the original value, or when the borrower is currently and the midpoint of the loan's amortization schedule passes.

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Lender-Paid PMI (LPMI)

Lender-paid PMI (LPMI) is PMI paid by the lender, with no cancellation options, and it's higher than borrower paid. The lender pays the PMI, borrower does not.

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PMI Disclosure

Lenders must disclose PMI & borrower's rights regarding cancellation and termination dates at loan closing for non-high risk loans.

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Adjustable-Rate Mortgages (ARMs)

ARMs have disclosures that adjust to reflect changes to amortization schedule due to rate changes.

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Dodd-Frank Act

Wide-reaching financial reform law enacted in response to 2008 crisis, affecting mortgage regulations and consumer protection.

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TRID Rule

TILA-RESPA Integrated Disclosure Rule, a federal regulation influencing mortgage loan interactions with borrowers, and part of Dodd-Frank.

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Conforming Loan Limits

Loan amounts that fit Fannie Mae and Freddie Mac's guidelines.

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LTV Ratio

Loan-to-Value ratio; measures the relationship between a mortgage loan and the value of the property.

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Study Notes

Homeowners Protection Act (HPA) of 1998

  • Purpose: Addresses difficulties canceling private mortgage insurance (PMI).
  • PMI Cancellation Provisions: Establishes guidelines for lender PMI cancellation.
  • Protection for Homeowners: Prohibits lifelong PMI coverage.
  • PMI Termination/Cancellation:
    • Borrower Request: PMI terminates within 30 days of request if:
      • Loan balance reaches 80% of original value.
      • Written cancellation request submitted.
      • Good payment history (no 30+ day late payments in 24 months).
      • Mortgage is current.
      • Meets mortgage holder requirements.
      • Evidence of property value not declining below original value.
      • Equity not subject to subordinate lien.
    • Automatic Termination:
      • Loan balance reaches 78% of original value (current on mortgage).
      • If borrower isn't current, termination on first day of month following becoming current.
    • High-Risk Loans: Exceptions to 80%/78% rules. PMI has specific termination requirements.
      • Conforming high-risk loans terminate at midpoint of amortization.
      • Lender-defined high-risk loans terminate when balance reaches 77% of original value.
  • Disclosures and Notices:
    • Non-High-Risk Mortgages: Initial amortization schedule, cancellation rights, and automatic termination dates.
    • Adjustable-Rate Mortgages (ARMs): Updated notices due to potential amortization changes.
    • High-Risk Mortgages: Early PMI termination notice (midpoint of amortization period).
  • Lender-Paid Mortgage Insurance (LPMI):
    • Important Differences: Cannot be canceled or automatically terminated.
    • Higher Interest Rates: Usually results in higher mortgage interest rates.
    • Termination: Only terminates on refinancing or payoff.
    • Notice Requirements: Differences compared to Borrower Paid Mortgage Insurance (BPMI), costs/benefits over 10 years, and potential tax deductions.

Dodd-Frank Act (2010)

  • Far-Reaching Reform: Provisions and controls affecting all segments of the financial sector.
  • Consumer Protection: Includes the Consumer Financial Protection Bureau (CFPB).
  • CFPB Authority: Enforces and interprets existing laws, and creates new ones.
  • TRID (TILA-RESPA Integrated Disclosure Rule): Direct result of Dodd-Frank and CFPB.
  • Mortgage Loan Originators: Key influence on their interactions, disclosures, and services to borrowers.

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Description

Test your knowledge on the Homeowners Protection Act (HPA) of 1998. This quiz covers important provisions related to the cancellation of private mortgage insurance (PMI) and protections for homeowners. Learn about the guidelines for PMI cancellation and the criteria needed for termination.

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