source:
  type: guide
  id: fnma-svc-c-1.1-02
  authority: Fannie Mae Servicing Guide C-1.1-02 — Processing Payment Shortages or
    Funds Received When a Mortgage Loan Modification Is Pending
  description: Fannie Mae Servicing Guide C-1.1-02 — Processing Payment Shortages
    or Funds Received When a Mortgage Loan Modification Is Pending.
  coverage_tier: operative
obligations:
- id: fnma-svc-c-1.1-02-full
  canonical_id: fnma-svc-c-1.1-02-full
  section: Fannie Mae Servicing Guide C-1.1-02 — Processing Payment Shortages or Funds
    Received When a Mortgage Loan Modification Is Pending
  type: do
  tags:
  - regulator-direct
  - fnma
  - servicing-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Servicing Guide C-1.1-02 — Processing Payment Shortages
      or Funds Received When a Mortgage Loan Modification Is Pending
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/servicing-guide
    snapshot_id: cf63a82bbb4adfba
    fetched_at: '2026-05-22T23:53:19Z'
    content_hash: sha256:89df66c43baad07f8a8dd9d224492fff7d15e8839edba02ad0e74c7e50fe5da3
    paragraph_quote: 'C-1.1-02, Processing Payment Shortages or Funds Received When
      a Mortgage Loan Modiﬁcation Is Pending (08/13/2025) Introduction This topic
      contains the following: Processing and Applying Payment Shortages Processing
      Funds Received When a Mortgage Loan Modiﬁcation Is Pending Processing and Applying
      Payment Shortages The servicer must accept and apply any borrower payment that
      includes the full amount for principal, interest, taxes, and insurance. The
      servicer must accept and apply these funds even though the amount excludes any
      applicable late charges, if permitted by applicable law and to the extent that
      acceptance would not jeopardize the servicer’s position in legal proceedings,
      such as foreclosure. If the interest rate of a mortgage loan has been reduced
      in accordance with D2-3.4-01, Military Indulgence, the servicer must waive the
      collection of late charges during the period for which the reduced interest
      rate remains in eﬀect. Also, see D2-3, Fannie Mae’s Home Retention and Liquidation
      Workout Options for requirements related to waiving late charges for speciﬁc
      workout options. For an escrowed ﬁrst lien mortgage loan with an instrument
      dated March 1999 or later, if the borrower’s payment is deﬁcient by $50 or less,
      the servicer is authorized to apply the payment by reducing the amount credited
      to the escrow account, apply the partial payment as “unapplied funds” in a T&I
      custodial account, or return the partial payment to the borrower. Published
      May 13, 2026 209 Note: The servicer must only accept a partial payment that
      is deﬁcient by $50 or less for up to three monthly mortgage loan payments during
      a 12-month period. With the exception of those partial payments applied as noted
      above, the servicer of a ﬁrst lien mortgage loan - and second lien mortgage
      loan, provided the ﬁrst lien mortgage loan is current - must accept a partial
      payment and hold it as “unapplied funds” in a T&I custodial account if all of
      the requirements in the following table are met. Otherwise, the servicer is
      authorized to return the partial payment to the borrower. ✓ The servicer must
      accept a partial payment as unapplied funds if all of the following conditions
      are met... The borrower has a commitment toward repayment of the mortgage loan
      obligation. The borrower is not habitually delinquent. The borrower does not
      have a history of remitting checks that are returned for insuﬃcient funds. The
      borrower commits to paying the balance of the payment within the next 30 days.
      Processing Funds Received When a Mortgage Loan Modiﬁcation Is Pending During
      any Trial Period Plan, and if permitted by the applicable loan documents, the
      servicer must accept and hold (as unapplied funds in a custodial account) trial
      period payments received which do not constitute a full monthly contractual
      payment. When the total of the reduced payments held as unapplied funds is equal
      to a full PITI payment, the servicer must apply all full payments to the mortgage
      loan. Any unapplied funds remaining at the end of the Trial Period Plan which
      do not constitute a monthly, contractual PITI payment must be applied to reduce
      any amounts that would otherwise be capitalized onto the principal balance.
      Recent Related Announcements The table below provides references to recently
      issued Announcements that are related to this topic. Announcements Issue Date
      Announcement SVC-2025-05 August 13, 2025 Announcement SVC-2019-08 December 11,
      2019 Published May 13, 2026 210'
  judgment: false
