Applying a Mortgage Loan Payment

The servicer must apply monthly payments in the order described in the following table, in accordance with C-1.1-01, Servicer Responsibilities for Processing Mortgage Loan Payments.

Date of mortgage loan instruments Monthly payments must be applied in the order listed

Instruments dated March 1999 or later

1. Interest

2. Principal

3. Deposits for escrow items, as applicable. Such deposits may include:

  • taxes and assessments;

  • property or MIPs;

  • leasehold payments or ground rents; and

  • community association dues, fees, and charges.

4. Late charges, if any

Instruments dated before March 1999

1. Deposits for insurance and taxes, if applicable

2. FHA service charges, if applicable

3. Interest

4. Principal

5. Late charges, if any

Calculating the Interest Portion of a Mortgage Loan Payment

The servicer must calculate the mortgage interest portion of the monthly payment as follows, in accordance with C-1.1-01, Servicer Responsibilities for Processing Mortgage Loan Payments.

If the mortgage loan is... Then the interest portion must be determined by calculating...

a fixed-rate first lien mortgage loan

30 days’ interest on the UPB as of the LPI date and using the current accrual rate.

a fixed-rate first lien biweekly mortgage loan

14 days’ interest on the UPB as of the LPI date and using the current interest accrual rate.

a fixed-rate second lien mortgage loan

each monthly payment using the payment-to-payment calculation method, when this is required by the security instrument. Otherwise, interest must be determined as outlined above.

an ARM loan

each monthly payment based on its applicable effective interest accrual date.

Note: Multiple interest accrual rates may apply.

Processing a Curtailment

If the borrower includes a curtailment with his or her monthly payment when the mortgage loan is current, the servicer must apply monthly payments in the order described in the following table, in accordance with Processing Additional Principal Payments for Current Mortgage Loans in C-1.2-01, Processing Additional Principal Payments.

When the borrower submits a curtailment... The servicer must...

with the scheduled monthly payment

apply the scheduled monthly payment first, then apply the curtailment.

at any other time of the month, separately

apply the curtailment first, then apply the next scheduled monthly payment.

After a substantial principal curtailment, the servicer may, in accordance with Processing Additional Principal Payments for Current Mortgage Loans in C-1.2-01, Processing Additional Principal Payments, agree to reduce the P&I payment only (based on a re-amortization of the current UPB and using the current interest rate and remaining loan term) for any current portfolio mortgage loan or for a current first lien mortgage loan that is in an MBS pool.

Collecting an Advance Made on Behalf of the Borrower at Payoff

When a mortgage loan is paid in full, the servicer is responsible for collecting any advances made on behalf of the borrower along with the mortgage loan payoff, in accordance with C-1.2-03, Processing Payments in Full. The following table describes the servicer’s responsibilities related to collecting advances.

The servicer must...

Collect any funds advanced on behalf of the borrower.

Remit the repayment as a special remittance to Fannie Mae, and within 30 days of the payoff date, if Fannie Mae advanced the funds.

Note: The repayment of advances must not be included as part of the payoff proceeds.

Calculating Interest on a Payoff

In accordance with C-1.1-01, Servicer Responsibilities for Processing Mortgage Loan Payments, the servicer must calculate the amount of interest charged to the borrower

  • based on the UPB of the mortgage loan,

  • as of the LPI date, and

  • using the current interest accrual rate.

A full month’s interest should be calculated on the basis of a 360–day year, while a partial month’s interest should be based on a 365–day year.

The servicer of a second lien mortgage loan or an FHA Title I loan may not use the rule of 78s (or the sum of the digits) method for calculating the interest unless Fannie Mae has provided approval for this calculation method.

The amount of interest that may be charged to the borrower is specified in the following table. This is not necessarily the amount of interest that will be remitted to Fannie Mae. Also see C-3-02, Remitting Payoff Proceeds. The servicer must follow the procedures in F-1-23, Remitting and Accounting to Fannie Mae.

Mortgage Loan Type The servicer must compute interest...
  • VA

  • RD

  • FHA Title I

  • Conventional first lien and second lien mortgage loans

  • FHA loans that are being refinanced as “new”

up to, but not including, the day the payoff funds were received.

  • All other FHA mortgage loans (regardless of the date they were endorsed for MI)

  • HUD-guaranteed Section 184 loans

  • up to the date of payoff, for payoff funds received on an installment due date; or

  • through the end of the month, for payoff funds received after an installment due date.

Note: When the installment due date falls on a non-business day, the receipt of the payoff funds shall be considered received on the installment due date provided they are received on the next business day.

Collecting a Prepayment Premium

In accordance with C-1.2-03, Processing Payments in Full, the servicer cannot impose or collect a prepayment premium on most mortgage loans. However, the servicer may collect a prepayment premium if all of the conditions set forth in the following table are satisfied and the mortgage loan is not a Texas Section 50(a)(6) loan.

To collect a prepayment premium, the servicer must...

Have a negotiated contract that specifically provides for the enforcement of a prepayment premium.

Meet the guidelines set out in the Selling Guide, B8–3–02, Special Note Provisions and Language Requirements.

Advise Fannie Mae of the collection of the premium when it next reports a Transaction Type 96 (LAR), regardless of whether Fannie Mae permits the servicer to retain the prepayment premium or requires it to remit the premium to Fannie Mae.

Applying Funds Remaining After Payoff in an Interest Rate Buydown Plan Account

When determining the amount to be collected for payoff of the mortgage loan, the servicer must consider any funds remaining in an interest buydown plan account. The following table provides additional guidance in accordance with Applying Funds Remaining in an Interest Rate Buydown Plan Account in C-1.2-03, Processing Payments in Full.

The servicer must...

Reduce the payoff amount by the amount of any remaining buydown funds.

Not subtract the buydown funds from the mortgage loan balance because an incorrect interest calculation would result.

Satisfying the Mortgage Loan and Releasing the Lien

After verifying the amount required to pay the mortgage loan in full has been received, the servicer must perform all of the tasks specified in the following table in accordance with C-1.2-04, Satisfying the Mortgage Loan and Releasing the Lien.

Note: The servicer must not pass on to the borrower or to Fannie Mae any penalty fee it has to pay because it failed to process the release and satisfaction documents within the required time frame.

The servicer must...

Remove Fannie Mae’s interest (or that of the mortgagee of record) from all applicable property insurance policies.

Notify the taxing authorities that future tax bills should be sent to the borrower (or to the servicer of the first lien mortgage loan if only a second lien mortgage loan is paid off).

Prepare and execute the appropriate release or satisfaction documents identified by the Fannie Mae loan number and, if applicable, the MERS MIN.

Send the satisfaction or release documents, and a request for the assignment of the custody documents, to the following address:

Fannie Mae

Vendor Oversight

Legal Document Execution

13150 Worldgate Drive

Herndon, VA 22070

Note: Fannie Mae will return the executed documents promptly to the servicer.

Notify the mortgage insurer or guarantor of the payoff.

If the mortgage loan is an eMortgage, update the MERS eRegistry with information of the payoff, charge-off, or assumption.

Advise MERS to deactivate the MERS registration for the mortgage loan, if applicable.

If the eMortgage is secured by property in a state that requires the return of a paper Note upon loan payoff, provide the borrower of an eMortgage a paper copy of the eNote marked “Copy” and “Paid-In-Full” and include:

  • a letter to the borrower explaining that the borrower is receiving a paper copy of the eNote which was originally registered in the MERS eRegistry, and that the servicer has caused the eNote to be deactivated on the MERS eRegistry due to payment in full, and

  • other documents and information required by applicable law.

Remit Fannie Mae’s share of the payoff proceeds in accordance with the remittance schedule established for the remittance type under which the mortgage loan is reported.

Code the payoff as Action Code 60 when it next reports a Transaction Type 96 (LAR) to Fannie Mae through Fannie Mae’s investor reporting system.

Related Announcements

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

Announcements Issue Date
Announcement SVC–2016–09 October 19, 2016
Announcement SVC–2015–12 September 9, 2015