If the principal curtailment being applied is less than the interest-bearing UPB, the servicer must apply such principal curtailment to the interest-bearing UPB. If the principal curtailment is greater than or equal to the interest-bearing UPB, then the servicer must apply such principal curtailment in the following order:
1. to the non-interest bearing balance, if any; and
2. to the interest-bearing UPB.
See Servicing Guide C-1.2-01, Processing Additional Principal Payments and Lender Letter LL-2020-07, COVID-19 Payment Deferral for additional information.
Note: This FAQ is from the Fannie Mae COVID-19 Frequently Asked Questions.
See below for more information on COVID-19: