source:
  type: guide
  id: fhlmc-8103.3
  authority: Freddie Mac Single-Family Seller/Servicer Guide Section 8103.3 — Application
    of Mortgage payments
  description: Freddie Mac Single-Family Seller/Servicer Guide Section 8103.3 — Application
    of Mortgage payments.
  coverage_tier: operative
obligations:
- id: fhlmc-8103.3-full
  canonical_id: fhlmc-8103.3-full
  section: Freddie Mac Single-Family Seller/Servicer Guide Section 8103.3 — Application
    of Mortgage payments
  type: do
  tags:
  - regulator-direct
  - fhlmc
  - freddie-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Freddie Mac Single-Family Seller/Servicer Guide Section 8103.3 — Application
      of Mortgage payments
    source_class: fhlmc-guide
    source_url: https://guide.freddiemac.com/ci-guide
    snapshot_id: 5869ee9e606cd4ae
    fetched_at: '2026-05-23T00:27:40Z'
    content_hash: sha256:9a1b23e5024bb369e7a59d36b3702383c11ace68b5d209fdef791bc8f955c637
    paragraph_quote: '8103.3: Application of Mortgage payments (12/17/25) This section
      contains requirements related to: ■ General application of payments ■ Differences
      in collection of payments ■ Mortgage paid in full Freddie Mac Single-Family
      Seller/Servicer Guide Chapter 8103 As of 12/17/25 Page 8103-5 ■ Partial prepayments
      (curtailments) ■ Reapplication of prior repayments (a) General application of
      payments Except as described in Sections 8103.3(b) through 8103.3(d), all payments
      of the monthly installment due shall be applied as specified in the Security
      Instrument. (b) Differences in collection of payments For each Mortgage, all
      payments received must equal or exceed the monthly principal, interest and Escrow,
      if applicable, unless a deficiency of $50 or less occurs. The Servicer must
      not create a payment deficiency by deducting a late charge from the regular
      monthly payment. Refer to Section 9102.2 for further information on late charge
      collections. A Mortgage payment, including Escrow amounts, that is deficient
      by $50 or less may be: ■ Applied by reducing the amount credited to the Escrow
      balance ■ Credited to an unapplied or suspense funds account until a full payment
      is received ■ Returned to the Borrower for a complete payment If the deficiency
      exceeds $50, the partial payment must be either credited to unapplied or suspense
      funds until a full payment is received or returned to the Borrower. Partial
      payments received from a Borrower during a repayment plan must be held in Freddie
      Mac’s Escrow Custodial Account until a full payment is received. Refer to Section
      8302.2(b) for requirements regarding the deposit of partial payments to the
      Escrow Custodial Account. Checks returned because of insufficient funds must
      be reflected as a complete reversal of the most recent Escrow, interest, Negative
      Amortization and principal application. Note: For Mortgages with a deferred
      UPB (also referred to as non-interest bearing UPB), the requirements within
      this section continue to apply. In accordance with the modification agreement,
      Payment Deferral agreement and/or Section 8303.2(a), as applicable, deferred
      UPB is due upon the earliest of the transfer or sale of all or a portion of
      the property, the payoff of the interest-bearing UPB or the Mortgage maturity
      date (as modified). (c) Mortgage paid in full (i) General Servicer responsibilities
      Freddie Mac Single-Family Seller/Servicer Guide Chapter 8103 As of 12/17/25
      Page 8103-6 The Servicer must determine and accept the amount required to pay
      a Mortgage in full, including the interest to the payoff date and remit the
      total proceeds due Freddie Mac. The Servicer is responsible for providing payoff
      amounts to individual Borrowers or their agents and is liable to Freddie Mac
      for any errors in the amount of any payoff. The Servicer must take all actions
      required by law, within statutory time limits, to release the lien and discharge
      the debt of a Mortgage that has been paid in full (paid off). The Servicer agrees
      to hold Freddie Mac, its successors and assigns harmless from and against any
      and all losses, claims, demands, actions, suits, damages, costs and expenses
      (including reasonable attorney fees) of every nature and character that may
      arise or be asserted against or be incurred by Freddie Mac as a result of the
      Servicer’s failure to comply with applicable law. If the Mortgage is evidenced
      by a Security Instrument or is insured or guaranteed under a federal program
      that prohibits the charging of a release or reconveyance fee upon payoff, the
      Servicer may not charge such a fee even if permitted to do so under applicable
      law. This prohibition extends to trustees in deed of trust jurisdictions and
      applies to “release” fees, “processing” fees, “forwarding” fees, “document preparation”
      fees and similarly denominated charges. In deed of trust jurisdictions, a Servicer
      must not knowingly employ or retain a trustee who charges Borrowers for reconveyance
      services. If permitted to do so under applicable law and the Security Instrument,
      the Servicer may charge the Borrower for the actual cost of recording the release
      or reconveyance. The Servicer must request the release of the Note and other
      documents held by the Document Custodian in accordance with Section 8107.1 for
      a Mortgage that has been paid in full. The Servicer must comply with any and
      all statutory requirements and time frames regarding disposition of the Note,
      which may require returning the Note to the Borrower following pay off. For
      an eMortgage (as defined in Section 1402.1(b)) that has been paid in full, the
      Servicer must also comply with the requirements in Section 1402.5(b)(iii). Payoff
      proceeds received by the Servicer must be remitted and reported to Freddie Mac
      in accordance with applicable provisions of Chapters 8303 and 8304. (ii) Prepayment
      Penalty Mortgages With respect to a Prepayment Penalty Mortgage, the Servicer
      must collect the amount of the prepayment penalty provided for in and under
      the conditions specified in the Mortgage loan instruments and: ■ For Prepayment
      Penalty Mortgages sold to Freddie Mac prior to October 14, 2005, the Servicer
      must not assess or collect a prepayment penalty if either: ❑ The proceeds received
      for the payoff of the Mortgage are from the sale of the Mortgaged Premises,
      or Freddie Mac Single-Family Seller/Servicer Guide Chapter 8103 As of 12/17/25
      Page 8103-7 ❑ The payoff of the Mortgage is received from any source, including
      insurance proceeds, in connection with the workout of a delinquent Mortgage
      or due to a default under the terms of Security Instrument ■ For Prepayment
      Penalty Mortgages sold to Freddie Mac on and after October 14, 2005, the Servicer
      must not assess or collect a prepayment penalty if either: ❑ The proceeds received
      for the payoff of the Mortgage are from the sale of the Mortgaged Premises and
      the prepayment period is more than three years, or ❑ The payoff of the Mortgage
      is received from any source, including insurance proceeds, in connection with
      the workout of a delinquent Mortgage or due to a default under the terms of
      the Security Instrument (iii) FHA and VA and Section 502 GRH Mortgages For FHA
      and VA and Section 502 GRH Mortgages, any notice of prepayment or entitlement
      to interest past the date of payment-in-full must be waived by the Servicer
      on behalf of Freddie Mac. Escrow balances may be either credited to the mortgagor
      or returned separately. When an FHA Mortgage is paid in full, the Servicer must
      collect the amounts due the FHA for the adjusted prepayment premium and for
      pro rata earned mortgage insurance premiums. The Servicer must then complete
      any required notice and submit it directly to the FHA with the required remittances.
      (iv) Buydown accounts Any funds remaining in the buydown account of a Mortgage
      prepaid in full must be released according to the terms of the buydown agreement.
      Note: For further explanation of procedures to be followed in regard to conventional,
      FHA, VA and Section 502 GRH Mortgage payments-in-full, see Section 8303.3(a).
      (d) Partial prepayments (curtailments) The Servicer may accept partial prepayments
      of principal in any amount according to the terms of the Note. Upon request
      by the Borrower, the monthly principal and interest (P&I) installments may be
      recalculated, provided that: ■ The monthly payments are current ■ There is no
      extension of the Note maturity date or the maturity date calculated in accordance
      with any modification agreement in force at the time of Freddie Mac’s purchase
      of the Mortgage Freddie Mac Single-Family Seller/Servicer Guide Chapter 8103
      As of 12/17/25 Page 8103-8 ■ Government Mortgage or MI approval is obtained,
      if applicable ■ The rate of interest stated in the Note remains unchanged The
      Servicer may determine, in its discretion and in compliance with applicable
      law, whether to require: ■ A modification agreement executed by both the Borrower
      and the Servicer, or ■ A Servicer-executed modification agreement The Servicer
      must report Loan Level Reporting exception code 91(Recast) in the Accounting
      Cycle containing the Due Date of the new Mortgage P&I monthly payment. Servicers
      must report Mortgages with a step rate via the Freddie Mac Servicing Data Corrections
      tool (see Exhibit 88, Servicing Tools) and report Loan Level Reporting exception
      code 91. If a prepayment(s), with the modified P&I constant, is received prior
      to the date the Mortgage P&I monthly payment changes, the Servicer must apply
      the payment in accordance with the Security Instrument but not report the payment
      to Freddie Mac prior to the date the Mortgage P&I monthly payment changes. However,
      if all contractual payments with the pre- modified P&I constant have previously
      been reported, then the recast exception code, the modified P&I constant and
      the modified Mortgage P&I payment may be reported in the Accounting Cycle prior
      to the Due Date of the modified Mortgage P&I payment. If the original Security
      Instrument was registered with MERS®, the Servicer must execute the modification
      agreement on behalf of MERS. Freddie Mac does not need to approve any modification
      meeting the requirements in this Section 8103.2(b). Freddie Mac will update
      its systems with the newly modified P&I payment as set forth in the modification
      agreement. The Servicer must also report and remit the new payment in accordance
      with the requirements in Chapter 8303. The Servicer warrants that, with respect
      to any modification agreement completed under this section, the modified Mortgage
      retains its First Lien position and is fully enforceable at the time of modification
      throughout its modified term and during any bankruptcy or foreclosure proceeding
      involving the Mortgage. Freddie Mac’s execution of any document submitted by
      the Servicer does not imply that it has reviewed the document for legal adequacy.
      This is the Servicer’s responsibility. When required by local law or practice,
      the Servicer must obtain the consent of any statutory or contractual lienholder
      and binding confirmation by the title insurer that no loss in priority of the
      lien is incurred. The Servicer must make any necessary recordation. To the extent
      of local law and practice, the Servicer may require the Borrower to reimburse
      the Servicer’s costs and pay expenses incurred in preparing or recording the
      modification agreement. Freddie Mac Single-Family Seller/Servicer Guide Chapter
      8103 As of 12/17/25 Page 8103-9 The Servicer must send one original modification
      agreement to the Document Custodian in accordance with the timing and other
      requirements of Section 9206.4(b); except for any Mortgage that is modified
      using a Servicer-executed modification agreement, the Servicer must send such
      agreement to the Document Custodian within 25 days of the Modification Effective
      Date. The Servicer must refer to Section 8103.2(b) for Freddie Mac’s accounting
      requirements regarding this subject. Principal curtailments can be made any
      Business Day of the month and must be applied no later than the day on which
      the curtailment is received. To determine the interest due for the next monthly
      payment, multiply the UPB by the interest rate of the Mortgage and divide by
      12. Funds received in consideration of a partial release of the Mortgaged Premises
      or the taking of the Mortgaged Premises in whole or in part by eminent domain
      will be applied as instructed by Freddie Mac in accordance with Sections 8401.1(a)
      and 8401.1(b). (i) ARMs For ARMs, curtailments must first be applied as a reduction
      of Negative Amortization and then as a reduction to principal. Both applications
      must be reported as principal due Freddie Mac in the loan-level transaction.
      (ii) Computing interest For computing forecasted scheduled interest due in the
      next Accounting Cycle, the interest must be calculated on the current Accounting
      Cycle interest-bearing Ending UPB, after applying all principal payments (i.e.,
      current monthly principal payment, curtailment and prepayments) received and
      reported in the current Accounting Cycle. (iii) Modifications Modifications
      on Home Mortgages that result in reduced monthly payments due to curtailments
      may be approved by the Servicer without Freddie Mac’s approval, provided that:
      ■ The monthly payments are current ■ There is no extension of the Note maturity
      date or the maturity date calculated in accordance with any modification agreement
      in force at the time of Freddie Mac’s purchase of the Mortgage ■ MI and Government
      Mortgage approval is obtained, if applicable ■ The Note Rate remains unchanged
      Freddie Mac Single-Family Seller/Servicer Guide Chapter 8103 As of 12/17/25
      Page 8103-10 ■ The modification is reflected in a written agreement and processed
      in accordance with the requirements in Section 8103.3(d). (Note: Per Section
      1402.5(b)(i), the Servicer must update the MERS eRegistry (as defined in Section
      1402.1(b)) to provide notice of the modification agreement upon a recast modification
      of an eMortgage (as defined in Section 1402.1(b)).) Except as otherwise stated
      in the Guide or applicable Purchase Documents, the Servicer must obtain Freddie
      Mac’s prior written approval before entering into a modification with a Borrower.
      (iv) Initial InterestSM Mortgages For Initial Interest Mortgages, if the Borrower
      makes a principal curtailment during the Interest Only Period, then the next
      interest-only payment must be recalculated based on the new UPB. For an Initial
      Interest 3/1, 5/1 and 7/1 10-year Interest Only Period ARM, if there is a principal
      curtailment during the period when the interest rate has begun adjusting annually
      but the monthly payments are still interest-only, the Servicer must continue
      to recalculate the next interest-only payment based on the new UPB until the
      end of the Interest Only Period; after the Interest Only Period, the monthly
      payment should be recalculated in accordance with the Servicer’s standard processes
      for ARMs. If the Borrower makes a principal curtailment during the Interest
      Only Period, then the next interest-only payment must be recalculated based
      on the new UPB. The Servicer must remit interest based on the new UPB to Freddie
      Mac in the Accounting Cycle immediately following the date the Borrower made
      the principal curtailment. Servicers must be able to comply with the terms of
      the Initial Interest Note and calculate (or recalculate) the first fully amortizing
      P&I payment based on the UPB after application of any partial prepayment received
      on or before the last interest only payment due date. Before the effective date
      of any change in the Borrower’s monthly payment, the Servicer must deliver or
      mail the Borrower a notice of such change. The notice must include the information
      required in the loan instruments or by applicable law and must also include
      the following: ■ Name and address of Borrower ■ Address of property ■ Loan number
      ■ Change in monthly payment ■ New monthly payment amount Freddie Mac Single-Family
      Seller/Servicer Guide Chapter 8103 As of 12/17/25 Page 8103-11 ■ Reason for
      change (e.g., reduction in UPB; loan becomes fully amortizing; change in interest
      rate, if an ARM) ■ Title and telephone number of a person who will answer any
      questions (v) Mortgages with a deferred balance For additional requirements
      on the application of partial prepayments of principal on Mortgages with a deferred
      UPB, refer to Section 8303.2(a)(iii). (e) Reapplication of prior repayments
      The Servicer may not automatically reapply prior prepayments or accumulated
      prepayments for payment of subsequent installments. Payments advanced to satisfy
      future installments must be accounted for as advanced (prepaid) installments
      of P&I. The Servicer should contact the Borrower if there is a question about
      the Borrower’s intent. Freddie Mac Single-Family Seller/Servicer Guide Chapter
      8104 As of 09/10/25 Page 8104-1 Chapter 8104: Special Servicing'
  judgment: false
