© 2018 Fannie Mae Single Family Servicing Guide
Determining the Monthly Mortgage Payment Amount
The servicer must grant a reduction in the interest rate to 6% in accordance with Reducing the Interest Rate in D2-3.4-01, Military Indulgence (06/13/2018).
The two methods for determining monthly mortgage loan payment amounts owed for mortgage loans for which the interest rate is reduced to 6% are described in the following table.
Method Rationale Standard Amortization Method and Payments
This method is based upon a recalculated amortization schedule with interest at the rate of 6% and the actual remaining term of the mortgage loan.
Interest Subsidy Amortization Method and Payments
This method is based on the amortization schedule (or schedules, in the case of an ARM) that would have applied if the servicemember had remained a civilian.
Each new payment is calculated as the sum of the next monthly principal installment called for by the applicable amortization schedule plus monthly interest at the rate of 6% based on the prior period's scheduled ending UPB (i.e., the principal balance scheduled to be outstanding immediately prior to the applicable due date).
This method results in an amount that increases each month, usually in a minimal amount. Accordingly, the servicer must adjust the payment periodically (at least annually) to ensure that the payment is sufficient to cover, in full, both the monthly principal installments called for by the applicable amortization schedule and interest accruing at 6%.
Fannie Mae requires that payments be applied first to principal, rather than interest, so that amortization stays on the schedule that would have applied if the servicemember had remained a civilian. Failure to recalculate the payment periodically will result in a servicemember interest payment at less than 6%.
The servicer must perform the action in the following table in order to advance the LPI date depending upon the mortgage loan type.
If the mortgage loan was delinquent when the servicemember entered active duty status and the mortgage loan is… Then the servicer must... a portfolio mortgage loan or a PFP mortgage loan
take the following steps:
1. Capitalize the delinquent interest by increasing the UPB and advancing the LPI date to bring the mortgage loan to a current status.
2. Use this balance to calculate the new monthly payment, based on the 6% interest rate and using the standard amortization method.
an MBS mortgage loan
take the following steps:
1. Hold the payments collected at the recalculated interest rate of 6% as unapplied funds.
2. Apply the funds when they are sufficient to pay the oldest delinquent installment (P&I) in full, with interest at the rate that was in effect when the installment came due.
3. Repeat this process until all the delinquent installments have been paid.
4. Apply payments to installments that came due after the amount owed was recalculated, based on the 6% interest rate and either the standard or the interest subsidy amortization method.
Fannie Mae, as the mortgage holder, will absorb the cost of this interest rate reduction.
Note: ARM loans placed under military indulgence require special treatment while an eligible servicemember is on active duty. Pursuant to the SCRA, the mortgage loan must be treated as a fixed-rate mortgage loan bearing interest at 6%, unless the applicable adjustable rate would be lower. This occurs with either the standard amortization method or the interest subsidy amortization method, in determining payments that come due after the date on which the servicemember reports for active U.S. military duty.
Any scheduled interest rate adjustments that would result in a rate in excess of 6% must be forgiven during the period of active duty. However, the servicer must never charge the servicemember a higher rate than he or she would have been charged if he or she had remained a civilian.
The servicer must change the installment to reflect the contractual interest rate for any period after active duty ends in which the SCRA requires an interest rate reduction to 6% to either the
- pre-military fixed rate, or
- the latest applicable interest rate for an ARM loan.
This will ensure that the servicemember is charged interest at 6% during whatever portion of the month he or she was on active duty. The following table provides requirements for recalculating the servicemember’s monthly mortgage loan payment after military service.
If... And the mortgage loan is... Then the servicemember’s monthly mortgage loan payment after service will be... the standard amortization method was used
a fixed-rate mortgage loan
the payment he or she had before the interest rate reduction.
an ARM loan
calculated by re-amortizing the UPB that is scheduled to be outstanding immediately following the last payment that is owed at the reduced rate of 6% at the latest applicable interest rate.
the interest subsidy amortization method was used
a fixed-rate mortgage loan
the payment he or she had before the interest rate reduction.
an ARM loan
the full payment as calculated and reported to Fannie Mae as of the scheduled interest change date that most recently precedes the servicemember’s release from active duty.
Determining the Servicing Fee Amount
The servicer must grant a reduction in the interest rate to 6% in accordance with Reducing the Interest Rate in D2-3.4-01, Military Indulgence (06/13/2018).
Once the servicer has reduced the interest rate to 6%, it must calculate its servicing fee on the UPB of the mortgage loan at the beginning of each month and not use a percentage-of-interest factor to determine the fee to ensure that it will continue to receive the same, or nearly the same, servicing fee that it would have received had the interest rate not been reduced to 6%.
Note: With the standard amortization method, there will be a slight difference because principal will amortize faster.
Reporting Military Indulgence to Fannie Mae
The servicer must notify Fannie Mae when it places a mortgage loan under military indulgence in accordance with the Servicing Guide. The servicer must notify Fannie Mae by completing the actions shown in the following table.
If the mortgage loan is.... Then the servicer must… a portfolio mortgage loan or a PFP mortgage loan
- Complete the SCRA Reporting and Disbursement Request Form (Form 1022) when the servicer
- reduces the servicemember’s interest rate;
- puts other forms of military indulgence into effect that changes the servicemember’s payment;
- changes the servicemember’s payment, if the interest subsidy amortization method is used; or
- changes the interest rate back to its pre-military interest rate (or the applicable adjusted rate, for an ARM); and
- Send an email with the completed Form 1022 to the Exceptions Transaction Management Unit at sailors_and_soldiers@fanniemae.com.
Note: The servicer must submit Form 1022 no later than the ninth business day of the month. Requests received after the ninth business day of the month will be processed the following month.
an MBS mortgage loan Submit the notification via a file upload using the SCRA Management System (SCRAMS) file transmit link on the Fannie Mae investor reporting system.
Note: The servicer must complete the upload no later than the 15th calendar day of the month. Uploads received after the 15th calendar day of the month will be processed the following month.
If military indulgence (in addition to reduction of the interest rate to 6%) is granted in connection with a delinquency, the servicer must also report the granting of military indulgence in the first delinquency status information report it transmits to Fannie Mae after the date the additional military indulgence was granted.
Note: If the mortgage loan is an ARM, the servicer must report through Fannie Mae's investor reporting system a Transaction Code 83: Monthly Rate/Payment Change, as each scheduled interest rate adjustment is due. Also see the Investor Reporting Manual .
Requesting Reimbursement for Advances
The servicer may request reimbursement for advances made under a military indulgence in accordance with the Servicing Guide. The process for requesting reimbursement for advances made under a military indulgence varies according to whether the mortgage loan is a portfolio mortgage loan or an MBS mortgage loan, as shown in the following table.
If the mortgage loan is… Then... a portfolio mortgage loan
Fannie Mae will adjust its investor reporting system records to reflect the 6% interest rate and new P&I payments (calculated in accordance with either the standard method or the interest subsidy method) upon receipt of Form 1022. The servicer will not have to advance any interest and no request for reimbursement is necessary.
Note: If the interest subsidy amortization method is used, the servicer must notify Fannie Mae by submitting Form 1022 to sailors_and_soldiers@fanniemae.com to notify Fannie Mae of any change in the monthly installment while the mortgage loan is under military indulgence.
a PFP mortgage loan
- regardless of remittance type, Fannie Mae will not adjust its investor reporting system records.
- the servicer must submit Form 1022 to sailors_and_soldiers@fanniemae.com by the ninth business day in order to request an adjustment be made to the servicer’s shortage surplus account for the current month.Note: Requests received after the ninth business day will be processed the following month.
an MBS mortgage loan
- regardless of remittance type, Fannie Mae will not adjust its investor reporting system records;
- the servicer must submit the mortgage loan information through Fannie Mae’s investor reporting system under the Loan Reporting screen through the SCRAMS file transmit link; and
- once the mortgage loan has been submitted through Fannie Mae’s investor reporting system, the servicer must only resubmit if
- corrections are needed,
- there is an early release, or
- service has been extended.
Fannie Mae will continue to make disbursements for the amount of the interest rate reduction through the military indulgence end date plus one year. The disbursements will be funded two days prior to the end of the month in the custodial account that the servicer has assigned for military indulgence funds. Once a mortgage loan is reclassified from the MBS pool, the servicer must submit Form 1022 to have the rates updated effective the month after the reclassification.
The servicer’s request for reimbursement will also differ based on the type of amortization method used. The following table provides additional instructions depending on amortization method.
If the servicer uses… Then... the standard amortization method
there will be a discrepancy between Fannie Mae's records and the servicer's records, not only with respect to the interest rate, but also between principal scheduled to be collected from the servicemember versus the principal scheduled to be paid to MBS investors. To correct this principal discrepancy, each month the servicer must
- remit a reconciling principal curtailment in the amount of the difference between the principal scheduled to be applied to the mortgage note (which is based on re-amortization with 6% interest over the remaining term), compared to the scheduled principal that is due to security holders (which is based on the amortization schedule, or schedules in the case of an ARM, that would have applied if the servicemember had remained a civilian);Note: Since this principal is collected from the mortgagor, it is not necessary to submit a reimbursement request for principal to Fannie Mae. (The sum of the interest reduction advanced by the servicer and reimbursed by Fannie Mae, plus the reduced servicemember payment, is more than the amount that would have been advanced to Fannie Mae had the servicemember remained a civilian by an excess amount that Fannie Mae applies on its records as the principal curtailment.)
- identify the principal curtailment on all pool reconciliations; and
- report the principal curtailment as unscheduled principal during security balance reporting period. (No reconciling principal curtailment is needed with the interest subsidy method because the principal portion of each monthly servicemember payment is the amount specified by the amortization schedule, or schedules in the case of an ARM, that would have applied if the servicemember had remained a civilian.)Note: If the servicer fails to report the reconciling principal curtailment at the MBS pool level, it will have a pool-to-security balance reconciliation problem.
the interest subsidy method
no reconciling principal curtailment needs to be reported. The servicer must, however, adhere to the following:
- apply payments to principal before interest (so that amortization stays on the applicable schedule).The amount necessary to cover, in full, both the monthly principal installments called for by the applicable amortization schedule and the interest accruing at 6% will increase each month, although usually by an immaterial amount; and
- recalculate the payment at least annually, to avoid a material underpayment of interest.Note: Request for reimbursement is not required. Fannie Mae is not required to reimburse for interest insofar as the payment the servicemember owes is insufficient to pay interest at the rate of 6% in full.