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C-1.2-01, Processing Additional Principal Payments (11/13/2024)

Introduction
This topic contains the following:

Processing Additional Principal Payments for Current Mortgage Loans

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

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

For additional contractual information as it pertains to principal curtailments, see Fannie Mae’s Selling Guide Topic B2–1.5–05: Principal Curtailments.

Mortgage Loans Subject to a Payment Deferral or a Modification: The following table outlines how the servicer must apply a principal curtailment on a mortgage loan subject to a payment deferral or a modification.

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

1. to the non-interest bearing balance, if any; and

2. to the interest-bearing UPB.

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.

Reapplying Principal Payments to Cure a Delinquency

Upon a borrower’s written or verbal request, the servicer is authorized to reapply principal prepayments to cure a delinquency if the request meets the conditions in the following table.

✓ Conditions that must be met to reapply principal prepayments to cure a delinquency
 

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).
  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 mortgage assistance funds from a mortgage assistance fund program provider. See  D2-3.1-05, Interacting with Mortgage Assistance Fund Program ProvidersD2-3.1-05, Interacting with Mortgage Assistance Fund Program Providers for additional information.
 

The borrower agrees to submit any additional funds that are needed to supplement the prepayment so that the total delinquency can be cured.

Note: 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 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

The following table lists the servicer’s responsibilities when the borrower requests that the mortgage loan be re-amortized to reduce the contractual monthly mortgage loan payment after a substantial principal curtailment.

✓

The servicer must…

 

complete an Agreement for Modification, Re-Amortization, or Extension of a Mortgage (Form 181). In completing Form 181, the servicer must

  • only revise as authorized in its instructions;
  • provide the borrower and the document custodian the completed Form 181;
  • determine, in compliance with applicable law, if the borrower is required to execute Form 181 to ensure the mortgage loan maintains its first lien position and is fully enforceable; and
  • send a copy of Form 181 to Fannie Mae's eVault via MERS eDelivery for eMortgages.

 

 

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

 

 

not consider a mortgage loan re-amortization to be a mortgage loan modification for the purpose of determining eligibility for a subsequent mortgage loan modification in accordance with this Guide.

 
 
Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC-2024-06 November 13, 2024
Announcement SVC-2023-05 October 11, 2023
Announcement SVC-2021-04 July 14, 2021
Announcement SVC-2020-04 September 9, 2020
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