Mortgage Loan Originator (MLO) Licensing Practice Test

Who is responsible under the HPA to remove PMI automatically?

1. Loan applicants

2. Mortgage servicers

3. Insurance regulators

4. Homeowners

The correct answer is: Mortgage servicers

Under the Homeowners Protection Act (HPA), mortgage servicers are responsible for automatically removing private mortgage insurance (PMI) once the homeowner's equity reaches 22% of the original purchase price or the appraised value of the property at the time of loan initiation, assuming the homeowner is current on their payments. The HPA was established to provide homeowners with protections regarding PMI, which is typically required when a borrower takes out a mortgage with a down payment of less than 20%. It mandates that servicers review the loan and assess whether the 22% equity threshold has been met, at which point they must remove PMI automatically without the homeowner needing to request the cancellation. Loan applicants and homeowners may inquire or initiate processes related to PMI removal, but ultimately, it is the servicer's duty to monitor and enact the removal proactively based on the equity calculations. Insurance regulators are involved in overseeing the insurance industry, but they do not directly interact with PMI removal processes tied to mortgage servicers.