CMPS CMPS Mortgage Insurance and Protection Products Questions and Answers 2 — Questions and Answers
Question 1: What is the VA Funding Fee, and which group of veterans is exempt from paying it?
- A fee for VA appraisals; all veterans pay it
- A one-time fee that replaces PMI on VA loans; veterans receiving VA disability compensation are exempt (Correct answer)
- An annual insurance premium charged monthly; National Guard members are exempt
- A processing fee; first-time homebuyers are exempt
Correct answer: A one-time fee that replaces PMI on VA loans; veterans receiving VA disability compensation are exempt
The VA Funding Fee is a one-time charge that helps fund the VA loan program in lieu of PMI; veterans with a service-connected disability rating of 10% or more are fully exempt.
Question 2: What is the USDA annual guarantee fee, and how does it compare to FHA's annual MIP in terms of cancellability?
- USDA's fee is higher than FHA and also permanent
- USDA's annual fee (currently 0.35%) is lower than FHA's and does cancel when LTV reaches 80% (Correct answer)
- USDA has no annual fee, only an upfront guarantee fee
- Both USDA and FHA fees are identical and permanent
Correct answer: USDA's annual fee (currently 0.35%) is lower than FHA's and does cancel when LTV reaches 80%
USDA charges an annual guarantee fee (currently 0.35% of the outstanding balance) that is lower than FHA's annual MIP and may be eliminated when the loan balance reaches 80% LTV.
Question 3: Which of the following best describes 'mortgage protection insurance' (MPI) as distinct from PMI?
- MPI is government-mandated on all high-LTV loans
- MPI is a voluntary life/disability insurance policy that pays off or reduces the mortgage balance if the borrower dies or becomes disabled (Correct answer)
- MPI is the same product as PMI but marketed to self-employed borrowers
- MPI covers property damage that homeowner's insurance excludes
Correct answer: MPI is a voluntary life/disability insurance policy that pays off or reduces the mortgage balance if the borrower dies or becomes disabled
Mortgage protection insurance is a voluntary decreasing-term life and/or disability policy that pays the lender (not the borrower's estate) to retire the mortgage debt upon a qualifying event.
Question 4: A borrower with a conventional loan reaches 20% equity through home appreciation. Can they request PMI cancellation based on the new appraised value?
- No — cancellation is only based on original purchase price
- Yes — borrowers may request cancellation based on current value if the loan is at least 2 years old (80% LTV) or 5 years old (any LTV), subject to lender guidelines (Correct answer)
- Yes — appreciation-based cancellation is automatic and requires no action
- No — only FHA loans allow equity-based MIP removal
Correct answer: Yes — borrowers may request cancellation based on current value if the loan is at least 2 years old (80% LTV) or 5 years old (any LTV), subject to lender guidelines
Under Fannie Mae guidelines, borrowers can request PMI cancellation based on current appraised value if the loan-to-value is 75% or below (2–5 years seasoning) or 80% (5+ years seasoning), typically requiring a new appraisal.
Question 5: What is 'split-premium PMI,' and when might a CMPS advisor recommend it?
- PMI split equally between borrower and lender with no rate impact
- A PMI structure where part of the premium is paid upfront at closing and the remainder is paid monthly, reducing the monthly payment compared to standard BPMI (Correct answer)
- PMI that splits between two properties simultaneously
- A form of LPMI available only on jumbo loans
Correct answer: A PMI structure where part of the premium is paid upfront at closing and the remainder is paid monthly, reducing the monthly payment compared to standard BPMI
Split-premium PMI combines an upfront payment at closing with a reduced monthly premium, lowering the ongoing monthly cost while not raising the interest rate like LPMI.
Question 6: Under RESPA, which of the following disclosures must lenders provide regarding PMI?
- A PMI cancellation schedule must be provided at application on all loan types
- For loans subject to the HPA, lenders must provide written disclosure of PMI cancellation and termination rights at loan consummation (Correct answer)
- PMI disclosure is optional and only required if the borrower requests it
- RESPA requires PMI disclosure only on FHA loans
Correct answer: For loans subject to the HPA, lenders must provide written disclosure of PMI cancellation and termination rights at loan consummation
The HPA (implemented alongside RESPA requirements) mandates that lenders disclose PMI cancellation rights — including the borrower's right to request cancellation at 80% LTV — at loan closing.
CMPS CMPS Mortgage Insurance and Protection Products Questions and Answers 2
What is the VA Funding Fee, and which group of veterans is exempt from paying it?