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 and incorrect interest rate for a current ARM loan?

The servicer must issue a cash refund or credit if the incorrect monthly payment and incorrect interest rate results in a net overcharge of more than $1.00. The following table describes procedures the servicer must follow in determining whether to refund or credit overcharges related to an incorrect monthly payment and an incorrect interest rate, in accordance with C- 2.2-03, Determining Whether to Provide a Refund or Credit for Overcharges.

If the mortgage loan is… Then the servicer must…

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

send the borrower a cash refund.

current, but the servicer has advanced funds to cure an escrow deficit

credit the overcharge by applying it to reduce the amount of the outstanding advance.

Note: If any of the net overcharge remains after the advance is fully paid, the servicer must send the borrower a cash refund of the remaining amount.

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

credit the borrower for the net overcharge, as follows:

If the net overcharge is sufficient to bring the mortgage loan current, the servicer must

  • apply the overcharge to the past due installments, and

  • provide the borrower a cash refund of any remaining amount.

If the net overcharge is not equal to the full amount of the delinquent monthly payments and applying the overcharge to them jeopardizes current or potential foreclosure proceedings, the servicer must treat the net overcharge as unapplied funds until the borrower submits all of the delinquent monthly payments.

If the servicer subsequently must initiate foreclosure proceedings because the borrower did not submit the additional amounts requested, the servicer must apply the funds being held as unapplied toward the reduction of the total indebtedness.

If the net overcharge is not equal to the full amount of the delinquent monthly payments, but applying the overcharge does not jeopardize foreclosure proceedings, the servicer must apply the overcharge to the delinquent monthly payments.

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

credit the borrower for the net overcharge by completing the steps in the following table.

Step Servicer Action
1

Apply the overcharge to reduce the amount of the servicer’s outstanding advance.

2

Apply any remaining overcharge to reduce the delinquency.

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

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