Servicing Guide

Published November 10, 2020

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What are the servicer responsibilities when processing a principal curtailment?

If the borrower includes a principal curtailment with his or her monthly payment when the mortgage loan is current, the servicer must apply monthly payments in the order described in the following table, in accordance with Processing Additional Principal Payments for Current Mortgage Loans in C-1.2-01, Processing Additional Principal Payments.

When the borrower submits a principal curtailment...

The servicer must...

with the scheduled monthly payment

apply the scheduled monthly payment first, then apply the principal curtailment.

at any other time of the month, separately

apply the principal curtailment first, then apply the next scheduled monthly payment.

 

After a substantial principal curtailment, the servicer may, in accordance with Processing Additional Principal Payments for Current Mortgage Loans in C-1.2-01, Processing Additional Principal Payments, agree to reduce the P&I payment only (based on a re-amortization of the current UPB and using the current interest rate and remaining loan term) for any current portfolio mortgage loan or for a current first lien mortgage loan that is in an MBS pool.

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