Which of the following is true about PMI as stated in the Homeowners Protection Act?

The correct statement about Private Mortgage Insurance (PMI) as outlined in the Homeowners Protection Act is that it is automatically canceled when specific loan-to-value (LTV) thresholds are met. This mechanism is designed to protect homeowners from paying PMI once they have built up enough equity in their property. Typically, the law mandates that PMI must be terminated automatically when the borrower's equity reaches 22% based on the original value of the property or if the borrower requests cancellation after reaching 20% equity, demonstrating a strong consumer protection component.

The requirements surrounding PMI are intentionally set to benefit homeowners, providing a clear path for them to eliminate this additional cost once they have established sufficient equity. This principle encourages responsible lending practices and promotes homeownership stability.

Other options suggest varying levels of truth about PMI. The notion that PMI is optional for all borrowers is not valid, as PMI is typically required for borrowers who make a down payment of less than 20%. The idea that it cannot exceed 3% of the loan amount doesn’t accurately reflect all PMI guidelines, as rates can vary based on risk factors. Lastly, while some PMI policies may offer limited refund options upon cancellation, the Homeowners Protection Act does not stipulate that PMI is refundable, so this statement