F-1-19, Processing a Military Indulgence (12/20/2023)

Standard Amortization Method and Payments

This method is based upon a recalculated amortization schedule with interest at the rate of 6% and the actual remaining term of the mortgage loan.

Interest Subsidy Amortization Method and Payments

This method is based on the amortization schedule (or schedules, in the case of an ARM) that would have applied if the servicemember had remained a civilian.

Each new payment is calculated as the sum of the next monthly principal installment called for by the applicable amortization schedule plus monthly interest at the rate of 6% based on the prior period's scheduled ending UPB (i.e., the principal balance scheduled to be outstanding immediately prior to the applicable due date).

This method results in an amount that increases each month, usually in a minimal amount. Accordingly, the servicer must adjust the payment periodically (at least annually) to ensure that the payment is sufficient to cover, in full, both the monthly principal installments called for by the applicable amortization schedule and interest accruing at 6%.

Fannie Mae requires that payments be applied first to principal, rather than interest, so that amortization stays on the schedule that would have applied if the servicemember had remained a civilian. Failure to recalculate the payment periodically will result in a servicemember interest payment at less than 6%.

a portfolio mortgage loan or a PFP mortgage loan

take the following steps:

1. Capitalize the delinquent interest by increasing the UPB and advancing the LPI date to bring the mortgage loan to a current status.

2. Use this balance to calculate the new monthly payment, based on the 6% interest rate and using the standard amortization method.

an MBS mortgage loan

take the following steps:

1. Hold the payments collected at the recalculated interest rate of 6% as unapplied funds.

2. Apply the funds when they are sufficient to pay the oldest delinquent installment (P&I) in full, with interest at the rate that was in effect when the installment came due.

3. Repeat this process until all the delinquent installments have been paid.

4. Apply payments to installments that came due after the amount owed was recalculated, based on the 6% interest rate and either the standard or the interest subsidy amortization method.

the standard amortization method was used

a fixed-rate mortgage loan

the payment they had before the interest rate reduction.

an ARM loan

calculated by re-amortizing the UPB that is scheduled to be outstanding immediately following the last payment that is owed at the reduced rate of 6% at the latest applicable interest rate.

the interest subsidy amortization method was used

a fixed-rate mortgage loan

the payment they had before the interest rate reduction.

an ARM loan

the full payment as calculated and reported to Fannie Mae as of the scheduled interest change date that most recently precedes the servicemember’s release from active duty.

• Complete the SCRA Reporting and Disbursement Request Form (Form 1022) when the servicer

  • reduces the servicemember’s interest rate;

  • puts other forms of military indulgence into effect that changes the servicemember’s payment;

  • changes the servicemember’s payment, if the interest subsidy amortization method is used; or

  • changes the interest rate back to its pre-military interest rate (or the applicable adjusted rate, for an ARM); and

• Send an email with the completed Form 1022 to the Exceptions Transaction Management Unit at [email protected].

Note: The servicer must submit Form 1022 no later than the ninth business day of the month. Requests received after the ninth business day of the month will be processed the following month.

Submit the notification via a file upload on the Fannie Mae investor reporting system.

Note: The servicer must complete the upload no later than the 15th calendar day of the month. Uploads received after the 15th calendar day of the month will be processed the following month.

a portfolio mortgage loan

Fannie Mae will adjust its investor reporting system records to reflect the 6% interest rate and new P&I payments (calculated in accordance with either the standard method or the interest subsidy method) upon receipt of Form 1022. The servicer will not have to advance any interest and no request for reimbursement is necessary.

Note: If the interest subsidy amortization method is used, the servicer must notify Fannie Mae by submitting Form 1022 to [email protected] to notify Fannie Mae of any change in the monthly installment while the mortgage loan is under military indulgence.

a PFP mortgage loan

• regardless of remittance type, Fannie Mae will not adjust its investor reporting system records.

• the servicer must submit Form 1022 to [email protected] by the ninth business day in order to request an adjustment be made to the servicer’s shortage surplus account for the current month.

  Note: Requests received after the ninth business day will be processed the following month.

an MBS mortgage loan

• regardless of remittance type, Fannie Mae will not adjust its investor reporting system records;

• the servicer must submit the mortgage loan information through Fannie Mae’s investor reporting system; and

• once the mortgage loan has been submitted through Fannie Mae’s investor reporting system, the servicer must only resubmit if

  • corrections are needed,

  • there is an early release, or

  • service has been extended.

the standard amortization method

there will be a discrepancy between Fannie Mae's records and the servicer's records, not only with respect to the interest rate, but also between principal scheduled to be collected from the servicemember versus the principal scheduled to be paid to MBS investors. To correct this principal discrepancy, each month the servicer must

• remit a reconciling principal curtailment in the amount of the difference between the principal scheduled to be applied to the mortgage note (which is based on re-amortization with 6% interest over the remaining term), compared to the scheduled principal that is due to security holders (which is based on the amortization schedule, or schedules in the case of an ARM, that would have applied if the servicemember had remained a civilian);

  Note: Since this principal is collected from the mortgagor, it is not necessary to submit a reimbursement request for principal to Fannie Mae. (The sum of the interest reduction advanced by the servicer and reimbursed by Fannie Mae, plus the reduced servicemember payment, is more than the amount that would have been advanced to Fannie Mae had the servicemember remained a civilian by an excess amount that Fannie Mae applies on its records as the principal curtailment.)

• identify the principal curtailment on all pool reconciliations; and

• report the principal curtailment as unscheduled principal during security balance reporting period. (No reconciling principal curtailment is needed with the interest subsidy method because the principal portion of each monthly servicemember payment is the amount specified by the amortization schedule, or schedules in the case of an ARM, that would have applied if the servicemember had remained a civilian.)

  Note: If the servicer fails to report the reconciling principal curtailment at the MBS pool level, it will have a pool-to-security balance reconciliation problem.

the interest subsidy method

no reconciling principal curtailment needs to be reported. The servicer must, however, adhere to the following:

• apply payments to principal before interest (so that amortization stays on the applicable schedule).The amount necessary to cover, in full, both the monthly principal installments called for by the applicable amortization schedule and the interest accruing at 6% will increase each month, although usually by an immaterial amount; and

• recalculate the payment at least annually, to avoid a material underpayment of interest.

  Note: Request for reimbursement is not required. Fannie Mae is not required to reimburse for interest insofar as the payment the servicemember owes is insufficient to pay interest at the rate of 6% in full.