source:
  type: guide
  id: fnma-sel-b2-1.5-05
  authority: Fannie Mae Selling Guide B2-1.5-05 — Principal Curtailments
  description: Fannie Mae Selling Guide B2-1.5-05 — Principal Curtailments.
  coverage_tier: operative
obligations:
- id: fnma-sel-b2-1.5-05-full
  canonical_id: fnma-sel-b2-1.5-05-full
  section: Fannie Mae Selling Guide B2-1.5-05 — Principal Curtailments
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B2-1.5-05 — Principal Curtailments
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B2-1.5-05, Principal Curtailments (11/06/2024) Introduction
      This topic contains information on principal curtailments, including: Overview
      Acceptable Curtailments Documentation Delivery Instructions Overview A principal
      curtailment is the application of funds used to reduce the unpaid principal
      balance of the mortgage loan. Fannie Mae permits certain curtailments prior
      to loan delivery provided the delivery data reﬂects the curtailment as described
      below. Published May 6, 2026 222 Acceptable Curtailments Fannie Mae permits
      curtailments prior to loan delivery for the following reasons: The lender may
      apply a principal curtailment to refund the overpayment of fees or charges paid
      by the borrower, in any amount, in accordance with applicable regulatory requirements.
      If the borrower receives more cash back than is permitted for limited cash-out
      reﬁnances, the lender can apply a curtailment to reduce the amount of cash back
      to the borrower to bring the loan into compliance with the maximum cash-back
      requirement. The maximum amount of the curtailment cannot exceed the lesser
      of $2,500 or 2% of the original loan amount for the subject loan. For example,
      if the borrower received $3,500 cash back at closing on a loan amount of $200,000,
      the lender could apply a $1,500 curtailment prior to delivery to Fannie Mae.
      This would result in “net cash back” to the borrower of $2,000, thus meeting
      Fannie Mae’s limited cash-out reﬁnance requirement. Fannie Mae also allows additional
      principal payments remitted by a borrower to prepay the mortgage loan as permitted
      by the loan documents. This includes curtailments applied to the principal balance
      to reduce the monthly mortgage payment. See B2-1.5-02, Loan Eligibility. Lenders
      must apply these curtailments prior to delivery of the loan to Fannie Mae. Such
      curtailments may not be held until after whole loan delivery or for application
      in the month subsequent to issuance of an MBS. Fannie Mae permits a lender to
      apply a curtailment after loan delivery to refund the overpayment of fees or
      charges paid by the borrower in accordance with applicable regulatory requirements,
      provided the amount of the curtailment does not exceed $500. All other curtailments
      received after loan delivery must be applied in accordance with the Servicing
      Guide. Documentation If the curtailment is made at the time of closing, the
      amount must be clearly documented on the settlement statement. If the curtailment
      is applied after closing, but before delivery, the loan ﬁle must be documented
      with the amount of the curtailment and the reason or source of the curtailment
      (for example, lender refund or borrower-initiated), and include any modiﬁcation
      agreement used to reduce the monthly payment following the application of the
      curtailment. If the lender elects to apply a principal curtailment after delivery
      to refund the overpayment of fees and charges as permitted above, the loan ﬁle
      must be documented with the amount, reason, and source of the curtailment. Delivery
      Instructions Refer to the Loan Modiﬁcations Job Aid for the delivery of loans
      impacted by a curtailment applied prior to the delivery of the loan to Fannie
      Mae. Published May 6, 2026 223 Recent Related Announcements The table below
      provides references to recently issued Announcements that are related to this
      topic. Announcements Issue Date Announcement SEL-2024-07 November 06, 2024 Announcement
      SEL-2021-10 November 03, 2021 Chapter B2-2, Borrower Eligibility Introduction
      This chapter explains the requirements related to borrower eligibility.'
  judgment: false
