Servicing Guide

Published September 9, 2020

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How should the servicer determine whether to refund or credit overcharges related to an incorrect monthly payment for a current ARM loan?

The following table provides instructions for the servicer to determine whether to refund or credit overcharges related to an incorrect monthly payment for a current ARM loan, in accordance with C-2.2-03, Determining Whether to Provide a Refund or Credit for Overcharges

If the ARM loan is… Then the servicer must…

current, and the servicer has not advanced funds to cure an escrow overdraft

give the borrower the choice between

  • receiving a cash refund and having the UPB of the mortgage loan increased to the correct amount; or

  • having the previous overpayment of principal treated as the application of a curtailment and leaving the actual, lower UPB in effect.

current, and the servicer has advanced funds to cure an escrow overdraft

give the borrower a choice between

  • having the overcharge credited against the servicer’s outstanding advance, or

  • having the overcharge treated as the previous application of a curtailment.

If the borrower chooses a credit, the servicer must increase the UPB of the mortgage loan to the amount that it would have been if the payment adjustment had been correct. However, the servicer may decrease the borrower’s payment by any amount previously added to the payment to repay the servicer for its advance.

If the borrower chooses a curtailment, then the actual, lower UPB remains in effect and the borrower must continue to pay the advance as part of the monthly payment.

delinquent, but the servicer has not advanced funds to cure an escrow overdraft

base its action on the amount of the overcharge, and either

  • leave the actual, lower UPB in effect if the overcharge is less than a monthly payment of P&I; or

  • credit the borrower if the overcharge is equal to one or more monthly payments of P&I by

    • changing the UPB of the ARM loan to the balance that would have been in effect if the adjustment error had not occurred; and

    • re-applying the overcharge as P&I installments to advance the LPI date, with any remaining overages credited as a curtailment.

delinquent, and the servicer has advanced funds to cure an escrow overdraft

repay its advance and apply any remainder toward reducing or curing the delinquency.

To repay its advance, the servicer must

  • increase the UPB of the ARM loan by the amount of the overcharge; and

  • reduce the monthly payment accordingly, if the monthly payment had been increased to repay the advance.

Note: The borrower will not be given an option on how to credit the overcharge.

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

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