© 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 |
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 |
|
an MBS mortgage loan |
|
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
|
the interest subsidy method | no reconciling principal curtailment needs to be reported. The servicer must, however, adhere to the following:
|