What is one requirement of the Homeowners Protection Act regarding private mortgage insurance (PMI)?

The Homeowners Protection Act includes specific provisions regarding private mortgage insurance (PMI) to protect consumers. One key requirement is that when a borrower reaches 78% loan-to-value (LTV) ratio, the lender must automatically discontinue PMI. This regulation is designed to ensure that borrowers are not burdened with unnecessary insurance costs once they have built sufficient equity in their homes.

This automatic cancellation of PMI at the 78% LTV threshold reflects a recognition of the decreased risk to lenders as the borrower gains equity, thus promoting fairness and financial relief for homeowners. The act also stresses that the lender must inform the borrower about this cancellation process, ensuring that consumers are aware of their rights and protections concerning PMI.

In contrast, other options present scenarios that do not align with the Homeowners Protection Act's provisions. For instance, increasing PMI when equity exceeds 85% LTV is not mandated; borrowers are expected to keep PMI only until their equity reaches the specified threshold. Maintaining PMI for the life of the loan contradicts the act's intent to allow for cancellation at a certain equity level. Lastly, the requirement to notify borrowers only upon request does not align with the act’s stipulation for automatic cancellation and notification, which aims for proactive communication from lenders