Servicing Guide

Published November 10, 2020

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When an ARM adjustment error is identified, how is the mortgage loan re-amortized?

In accordance with Re-Amortizing the Mortgage Loan in C-2.2-01, Identifying and Disclosing Adjustment Errors, the servicer must adhere to the following instructions.  

To re-amortize the mortgage loan, the servicer must use

  • the correct interest rate for each interest rate adjustment date that occurred during the period the ARM loan was incorrectly adjusted, and
  • the actual payment that the borrower has been making.

However, if the adjustment error for any given adjustment period involved only an incorrect monthly payment, the ARM loan should be re-amortized for only that adjustment period. For this scenario, the servicer must use

  • the correct interest rate, and 
  • the correct monthly payment (instead of the actual payment the borrower was making).

The servicer must also ensure the dates on which it applies any principal curtailments under the corrected amortization schedule are the same as those on which the curtailments were actually applied.

Note: The overcharge or undercharge to the borrower is the difference between the re-amortized UPB for the ARM loan and the actual UPB that resulted from the incorrect payment application.

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

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