Question

A lender who does not cancel PMI when the LTV reaches 78% is in violation of which federal law?

A. Real Estate Settlement Procedures Act (RESPA).
B. Truth in Lending Act (TILA).
C. Fair Credit Reporting Act (FCRA).
D. Equal Credit Opportunity Act (ECOA).

Answer 1

The lender who does not cancel PMI when the LTV reaches 78% is in violation of the Truth in Lending Act (TILA). Under TILA, lenders are required to automatically cancel the PMI when the borrower's equity in the property reaches 78% of the original purchase price or appraised value, whichever is less.

Step-by-step explanation:

The lender who does not cancel PMI (Private Mortgage Insurance) when the LTV (Loan-to-Value) reaches 78% is in violation of the Truth in Lending Act (TILA).

Under TILA, lenders are required to automatically cancel the PMI when the borrower's equity in the property reaches 78% of the original purchase price or appraised value, whichever is less. This is known as the automatic termination provision, and it protects homeowners from paying unnecessary PMI premiums when they have sufficient equity in their homes.

By failing to cancel the PMI, the lender is not in compliance with TILA and may be subject to penalties and legal action.