Servicing Guide

Published September 9, 2020

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When an ARM adjustment error has been identified, how is the new monthly payment determined?

When the servicer identifies and corrects an adjustment error, it must then calculate the new monthly payment, in accordance with Calculating the New, Correct Monthly Payments in C-2.2-01, Identifying and Disclosing Adjustment Errors. The following table describes the process for determining the correct monthly payment.

If the adjustment error involved… Then the interest rate…

both an incorrect interest rate and monthly payment

may or may not need to be changed, depending on whether the subsequent interest rate adjustments resulted in the borrower being charged interest at the correct rate.

To calculate the correct monthly payment, the servicer must use

  • the correct interest rate;

  • the actual UPB and remaining mortgage loan term as of the LPI date; and

  • any applicable payment cap, unless its application would perpetuate the previous error(s).

an incorrect monthly payment only

does not need to be changed.

To calculate the correct monthly payment, the servicer must use the monthly payment that should have become effective on the last payment adjustment date.

  • Note: This is necessary even if the difference between the correct payment and the erroneous payment is greater than the applicable per-adjustment cap.

an incorrect interest rate only

may or may not need to be changed, depending on whether subsequent rate adjustments resulted in the borrower being charged interest at the correct rate.

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

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