Servicing Guide

Published November 10, 2020

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When an ARM adjustment error has been identified, how is the undercharge or overcharge determined?

When the servicer identifies and corrects an adjustment error, it must then determine the amount of the undercharge or overcharge, 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 making this determination.

If... And... Then the borrower...

both the mortgage loan interest rate and the monthly payment were incorrect

the UPB that results from the re-amortization is lower than the actual principal balance of the mortgage loan

was overcharged, and is due a refund of (or a credit for) the overcharge.

both the mortgage loan interest rate and the monthly payment were incorrect

the UPB that results from the re-amortization is higher than the actual principal balance of the mortgage loan

was undercharged, although the servicer must not require the borrower to make up the difference between the actual payment and the correct payment, nor may it charge the borrower interest on the amount of the undercharge.

the mortgage loan interest rate was incorrect, but the monthly payment was correct

the UPB that results from the re-amortization is lower than the actual principal balance of the mortgage loan

was charged too much interest, and is due a credit for the overcharge. Because the monthly payment was correct, the borrower is not due an actual cash refund of the interest overcharge. Instead, the servicer must re-allocate the payment it received between P&I to reduce the UPB by the amount of the overcharge.

the mortgage loan interest rate was incorrect, but the monthly payment was correct

the UPB that results from the re-amortization is higher than the actual principal balance of the mortgage loan

was charged too little interest. The servicer must not require the borrower to make up the interest undercharge, re-allocate the borrower’s payment between P&I, or charge the borrower interest on the amount of the undercharge.

the monthly payment was incorrect, but the mortgage loan interest rate was correct

the UPB that results from the re-amortization is higher than the actual principal balance of the mortgage loan

was overcharged, and is due a credit for the overcharge. Under certain conditions, the borrower is due a refund of the overcharge.

the monthly payment was incorrect, but the mortgage loan interest rate was correct

the UPB that results from the re-amortization is lower than the actual principal balance of the mortgage loan

was undercharged. The servicer must not require the borrower to make up the difference between his or her actual payment and the correct payment, nor may it charge the borrower interest on the amount of the undercharge.

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

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