Processing Additional Principal Payments for Current Mortgage Loans

The servicer must immediately accept and apply an additional principal payment (referred to as a curtailment) identified by the borrower as such for a current mortgage loan.

The servicer must follow the procedures in Processing a Curtailment in F-1-09, Processing Mortgage Loan Payments and Payoffsfor detailed instructions related to applying a curtailment for a current mortgage loan.

For additional contractual information as it pertains to curtailments, see Fannie Mae’s Selling Guide Topic B2–1.4–05: Principal Curtailments.

Modified Mortgage Loans: The following table outlines how the servicer must apply a curtailment on a modified mortgage loan.

If the curtailment being applied... Then the servicer must apply such curtailment...

is less than the interest-bearing UPB

to the interest-bearing UPB.

is greater than or equal to the interest-bearing UPB

in the following order to the

1. deferred UPB, if any; and

2. interest-bearing UPB.

Note: For processing HAMP “pay for performance” incentives, see Incentive Compensation for a HAMP Modification in F-1-21, Processing a Workout Incentive Fee.

Processing Additional Principal Payments for Delinquent Mortgage Loans

In the case of a delinquent mortgage loan, any additional principal payments identified as such must first be applied toward curing the delinquency. If there are any remaining funds, the servicer must then apply them in accordance with Processing Additional Principal Payments for Current Mortgage Loans.

Note: For processing HAMP “pay for performance” incentives, see Incentive Compensation for a HAMP Modification in F-1-21, Processing a Workout Incentive Fee.

Reapplying Principal Payments to Cure a Delinquency

At the borrower’s request, the servicer is authorized to reapply principal prepayments to cure a delinquency if the mortgage loan is either

  • a portfolio mortgage loan; or

  • a participation pool mortgage loan (which is not a mortgage loan that has been pooled to back an MBS issue, including PFP mortgage loans); and as long as all of the following conditions apply:

    • the borrower submits a written request;

    • the reapplication of the principal prepayment does not result in the mortgage loan balance being higher than it would have been had the original amortization schedule for the mortgage loan been followed;

    • the borrower has not previously received modification assistance program funds from an HFA. See D2-3.1-05, Interacting with Housing Finance Agencies and Hardest Hit Fund Programs for additional information; and

    • the borrower agrees to submit any additional funds that are needed to supplement the prepayment so that the total delinquency can be cured. If the borrower cannot raise the additional funds, the servicer is authorized to combine the reapplication of a principal prepayment with a workout option. See D2-3, Fannie Mae’s Home Retention and Liquidation Workout Options for additional information.

Processing Additional Principal Payments at Fannie Mae’s Request

Upon receipt of Fannie Mae’s request to reduce the UPB of a mortgage loan for a partial release of security, a condemnation award, or insurance proceeds sent to the servicer, the servicer must process the funds as an additional principal payment.

Processing a Re-Amortization After Application of Additional Principal Payments

If, after making a substantial curtailment, the borrower requests that the mortgage loan balance be re-amortized to reduce the mortgage loan payment, the servicer must

  • complete an Agreement for Modification, Re-Amortization, or Extension of a Mortgage (Form 181).Form 181 must only be revised as authorized in its instructions;

  • provide the borrower and the document custodian the completed Form 181; and

  • report the payment change as described in Reporting a Transaction Type 83 (Payment/Rate Change Record) in the Investor Reporting Manual.

The servicer must determine, in compliance with applicable law, if the borrower is required to execute Form 181 to ensure that the mortgage loan maintains its first lien position and is fully enforceable.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC-2016–02 March 9, 2016
Announcement SVC-2015–12 September 9, 2015
Announcement SVC-2015–10 July 8, 2015
Announcement SVC-2015–07 May 20, 2015