In accordance with Servicing Guide C-2.2-01, Identifying and Disclosing Adjustment Errors 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. 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 from the date of the first erroneous adjustment through the date the LPI was applied to determine whether the borrower has been overcharged or undercharged.
The servicer must follow the procedures in Re-Amortizing the Mortgage Loan in Servicing Guide F-1-01, Servicing ARM Loans to complete the re-amortization.
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 provide the following information to its Fannie Mae Investor Reporting Representative (see Servicing Guide F-4-03, List of Contacts) to support a request for a correction of any ARM adjustment error:
- a brief cover letter that explains the exact nature of the error, and
- supporting documentation for the proposed corrective action (such as copies of the servicer's ARM audit analysis for the mortgage loan, the mortgage note and ARM rider, payment history records, corrected amortization schedules, the lender's negotiated contract, purchase advices etc.).
See also Servicing Guide F-4-03, List of Contacts for additional information. After the servicer confirms ARM adjustment error(s) and has re-amortized the mortgage loan, the servicer must correct the error(s) in its and Fannie Mae’s records.
For more information see Investor Reporting Manual Chapter 4, Special Loan Handling.