Servicing Guide

Published September 18, 2018

C-2.2-01: Identifying and Disclosing Adjustment Errors (11/12/2014)

The servicer must verify all previous interest rate and payment adjustments were correctly handled for a mortgage loan before it corrects an identified adjustment error.

When the servicer confirms either an individual ARM adjustment error, or the cumulative effect of several ARM adjustment errors, the servicer must make arrangements within 60 days to

  • correct the error(s) in its and Fannie Mae’s records,

  • adjust the borrower’s current interest rate and/or monthly payment without waiting for the next scheduled interest rate and/or monthly payment adjustment date (taking into consideration Fannie Mae’s policy on the applicability of any interest rate or payment caps specified in the mortgage loan documents), and

  • notify the borrower about the effect of the correction.

If the servicer is unable to resolve an ARM adjustment error within 20 days of having received a borrower inquiry concerning the matter, it must send the borrower an interim response.

The servicer must not report the correction of an ARM adjustment error or make an effort to correct an erroneous remittance until it has discussed the specifics of the correction with its Fannie Mae Investor Reporting Representative (see F-4-03, List of Contacts ).

The servicer must follow all applicable procedures in Correcting ARM Adjustment Errors in F-1-01, Servicing ARM Loans .

This topic contains the following:

Re-Amortizing the Mortgage Loan

Once the servicer verifies the correct interest rate or monthly payment for each adjustment date that has occurred, it must re-amortize the mortgage loan to determine whether the borrower has been overcharged or undercharged.

The mortgage loan must be re-amortized from the date of the first erroneous adjustment through the date the LPI was applied.

The servicer must follow the procedures in Re-amortizing the Mortgage Loan in F-1-01, Servicing ARM Loans to complete the re-amortization.

Calculating the New, Correct Monthly Payments

The servicer must determine whether the borrower’s monthly payment needs to be changed as a result of any ARM adjustment error. If the net effect of correcting an adjustment error is an undercharge, it cannot be collected from the borrower, nor can the UPB of the mortgage loan be changed to offset it.

The servicer must follow the procedures in Calculating the New Monthly Payment After an Adjustment Error and Determining the Amount of an Under- or Overcharge Related to an Adjustment Error in F-1-01, Servicing ARM Loans to calculate the correct monthly payment.