Servicing Guide

Published September 9, 2020

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What steps should be taken to verify the correct interest rate for each ARM adjustment period including ARM adjustment errors that involve incorrect interest rate changes or incorrect payment changes?

The following table provides instructions for verifying the correct interest rate for each ARM adjustment period in accordance with C-2.2-01, Identifying and Disclosing Adjustment Errors 

Step Servicer Action
1

Use the correct index value applicable for each adjustment date.

2

Apply any per-adjustment interest rate caps.

3

Round the resulting rate as specified in the mortgage loan instrument.

  • Note: If application of a per-adjustment cap to the final interest rate change would perpetuate the error(s), the servicer must not apply it. The corrected interest rate must never exceed the original interest rate by more than the lifetime cap specified in the mortgage loan instruments.

This same procedure must be used to verify ARM adjustment errors that involve only incorrect interest rate changes, as well as to verify errors that involve only incorrect payment changes if the errors were not identified until after an interest rate change occurred.

The following table shows a variation of this procedure that must be used for ARM adjustment errors involving only incorrect payment changes that are identified before an interest rate change occurs.

Step Servicer Action
1

Use the correct monthly payment applicable for each payment adjustment date.

2

Apply any payment caps for each adjustment date that occurred during the period for which the ARM loan was incorrectly adjusted.

  • Note: If applying a per-adjustment cap to any payment change would perpetuate the previous error(s), the servicer must not apply it.

For more information please see F-1-01, Servicing ARM Loans

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