source:
  type: guide
  id: fnma-svc-f-1-01
  authority: Fannie Mae Servicing Guide F-1-01 — Servicing ARM Loans
  description: Fannie Mae Servicing Guide F-1-01 — Servicing ARM Loans.
  coverage_tier: operative
obligations:
- id: fnma-svc-f-1-01-full
  canonical_id: fnma-svc-f-1-01-full
  section: Fannie Mae Servicing Guide F-1-01 — Servicing ARM Loans
  type: do
  tags:
  - regulator-direct
  - fnma
  - servicing-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Servicing Guide F-1-01 — Servicing ARM Loans
    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: 'F-1-01, Servicing ARM Loans (12/20/2023) Introduction This Servicing
      Guide Procedure contains the following: Reviewing ARM Adjustment Correction
      Errors Reviewing ARM Adjustment Correction Errors for Assumed Mortgage Loans
      Correcting ARM Adjustment Errors Verifying the Correct Interest Rate and Payment
      Amount for Each Adjustment Period Re-Amortizing the Mortgage Loan Calculating
      the New Monthly Payment After an Adjustment Error Determining the Amount of
      an Under- or Overcharge Related to an Adjustment Error Correcting Conversion
      Notice Errors Refunding or Crediting Overcharges Resulting from an Incorrect
      Monthly Payment Refunding or Crediting Overcharges Resulting from an Incorrect
      Monthly Payment and an Incorrect Interest Rate Exercising/Reporting ARM Conversions
      for Portfolio Mortgage Loans Determining Fannie Mae’s Required Net Yield for
      an ARM Loan Conversion Determining the Monthly Payment and Eﬀective Date for
      an ARM Loan Conversion Repurchasing Converted MBS Mortgage Loans and Redelivering
      Them to Fannie Mae Reviewing ARM Adjustment Correction Errors When reviewing
      adjustments made for ARM loans it services for Fannie Mae, the servicer must
      follow all of Fannie Mae’s procedures, in accordance with C-2.2-01, Identifying
      and Disclosing Adjustment Errors, regardless of whether the review is undertaken
      as a result of a full audit, a routine spot-check of its ARM adjustments, or
      an inquiry from a third party. Reviewing ARM Adjustment Correction Errors for
      Assumed Mortgage Loans The following table describes how to review adjustments
      for ARM loans that have been assumed, in accordance Published May 13, 2026 526
      with C-2.2-01, Identifying and Disclosing Adjustment Errors If the previous
      borrower… Then the servicer must… requested the review review only those adjustments
      that occurred prior to the eﬀective date of the assumption. did not request
      the review review only those adjustments that occurred after the eﬀective date
      of the assumption. Correcting ARM Adjustment Errors The following table describes
      various scenarios and resulting actions the servicer must take after correcting
      an ARM adjustment error, in accordance with C-2.2-01, Identifying and Disclosing
      Adjustment Errors If the servicer… Then the servicer must… does not reﬂect the
      adjustment error consistently in its own internal records, Fannie Mae’s records,
      and notices sent to the borrower adjust its records by re-amortizing the mortgage
      loan to properly allocate the P&I distribution for any incorrectly applied payments
      and to correct the UPB. Note: Generally, the borrower does not need to be notiﬁed
      of the correction since it results in amortization of the mortgage loan under
      the terms that were disclosed to the borrower in their mortgage loan documents.
      is required to ﬁle a corrected Mortgage Interest Statement (IRS Form 1098) with
      the IRS send the borrower the appropriate notiﬁcation of the correction. notiﬁes
      the borrower of an incorrect interest rate and/or monthly payment, but updates
      its records and Fannie Mae’s records correctly notify the borrower of the correction
      and update Fannie Mae’s records if the borrower’s UPB after the correction diﬀers
      from the UPB that Fannie Mae has in its records. If the ARM adjustment errors
      require a correction to the Fannie Mae investor reporting system records, the
      servicer may need to change the monthly payment, the mortgage loan interest
      rate, the mortgage loan PTR, Published May 13, 2026 527 the pool accrual rate,
      and/or other key ARM plan parameters that Fannie Mae retains in its records.
      ARM adjustment errors may also have resulted from the servicer’s erroneous remittances
      to Fannie Mae. Fannie Mae may require the servicer to submit appropriate documentation
      to support its proposed corrective action. This documentation may include: copies
      of the mortgage note and ARM rider; the payment history records; the corrected
      amortization schedule; and the lender’s negotiated contract, if it permitted
      the ARM adjustments to be handled in a manner that diﬀers from Fannie Mae’s
      standard requirements. Verifying the Correct Interest Rate and Payment Amount
      for Each Adjustment Period The following table provides instructions for verifying
      the correct interest rate for each ARM adjustment period in accordance with
      C-2.2-01, Identifying and Disclosing Adjustment Errors. Step Servicer Action
      1 Use the correct index value applicable for each adjustment date. 2 Apply any
      per-adjustment interest rate caps. 3 Round the resulting rate as speciﬁed in
      the mortgage loan instrument. Note: If application of a per-adjustment cap to
      the ﬁnal interest rate change would perpetuate the error(s), the servicer must
      not apply it. The corrected interest rate must never exceed the original interest
      rate by more than the lifetime cap speciﬁed in the mortgage loan instruments.
      This same procedure must be used to verify ARM adjustment errors that involve
      only incorrect interest rate changes, as well as to verify errors that involve
      only incorrect payment changes if the errors were not identiﬁed until after
      an interest rate change occurred. The following table shows a variation of this
      procedure that must be used for ARM adjustment errors involving only incorrect
      payment changes that are identiﬁed before an interest rate change occurs. Step
      Servicer Action 1 Use the correct monthly payment applicable for each payment
      adjustment date. Published May 13, 2026 528 Step Servicer Action 2 Apply any
      payment caps for each adjustment date that occurred during the period for which
      the ARM loan was incorrectly adjusted. Note: If applying a per-adjustment cap
      to any payment change would perpetuate the previous error(s), the servicer must
      not apply it. Re-Amortizing the Mortgage Loan In accordance with Re-Amortizing
      the Mortgage Loan in C-2.2-01, Identifying and Disclosing Adjustment Errors,
      the servicer must adhere to the following instructions. To re-amortize the mortgage
      loan, the servicer must use the correct interest rate for each interest rate
      adjustment date that occurred during the period the ARM loan was incorrectly
      adjusted, and the actual payment that the borrower has been making. However,
      if the adjustment error for any given adjustment period involved only an incorrect
      monthly payment, the ARM loan should be re-amortized for only that adjustment
      period. For this scenario, the servicer must use the correct interest rate,
      and the correct monthly payment (instead of the actual payment the borrower
      was making). The servicer must also ensure the dates on which it applies any
      principal curtailments under the corrected amortization schedule are the same
      as those on which the curtailments were actually applied. Note: The overcharge
      or undercharge to the borrower is the diﬀerence between the re-amortized UPB
      for the ARM loan and the actual UPB that resulted from the incorrect payment
      application. Calculating the New Monthly Payment After an Adjustment Error When
      the servicer identiﬁes and corrects an adjustment error, it must then calculate
      the new monthly payment, in accordance with Calculating the New, Correct Monthly
      Payments in C-2.2-01, Identifying and Disclosing Adjustment Errors. The following
      table describes the process for determining the correct monthly payment. Published
      May 13, 2026 529 If the adjustment error involved… Then the interest rate… both
      an incorrect interest rate and monthly payment may or may not need to be changed,
      depending on whether the subsequent interest rate adjustments resulted in the
      borrower being charged interest at the correct rate. To calculate the correct
      monthly payment, the servicer must use • the correct interest rate; • the actual
      UPB and remaining mortgage loan term as of the LPI date; and • any applicable
      payment cap, unless its application would perpetuate the previous error(s).
      an incorrect monthly payment only does not need to be changed. To calculate
      the correct monthly payment, the servicer must use the monthly payment that
      should have become eﬀective on the last payment adjustment date. Note: This
      is necessary even if the diﬀerence between the correct payment and the erroneous
      payment is greater than the applicable per- adjustment cap. an incorrect interest
      rate only may or may not need to be changed, depending on whether subsequent
      rate adjustments resulted in the borrower being charged interest at the correct
      rate. Determining the Amount of an Under- or Overcharge Related to an Adjustment
      Error When the servicer identiﬁes and corrects an adjustment error, it must
      then determine the amount of the undercharge or overcharge, in accordance with
      Calculating the New, Correct Monthly Payments in C-2.2-01, Identifying and Disclosing
      Adjustment Errors. The following table describes the process for making this
      determination. Published May 13, 2026 530 If... And... Then the borrower...
      both the mortgage loan interest rate and the monthly payment were incorrect
      the UPB that results from the re- amortization is lower than the actual principal
      balance of the mortgage loan was overcharged, and is due a refund of (or a credit
      for) the overcharge. both the mortgage loan interest rate and the monthly payment
      were incorrect the UPB that results from the re- amortization is higher than
      the actual principal balance of the mortgage loan was undercharged, although
      the servicer must not require the borrower to make up the diﬀerence between
      the actual payment and the correct payment, nor may it charge the borrower interest
      on the amount of the undercharge. the mortgage loan interest rate was incorrect,
      but the monthly payment was correct the UPB that results from the re- amortization
      is lower than the actual principal balance of the mortgage loan was charged
      too much interest, and is due a credit for the overcharge. Because the monthly
      payment was correct, the borrower is not due an actual cash refund of the interest
      overcharge. Instead, the servicer must re-allocate the payment it received between
      P&I to reduce the UPB by the amount of the overcharge. the mortgage loan interest
      rate was incorrect, but the monthly payment was correct the UPB that results
      from the re- amortization is higher than the actual principal balance of the
      mortgage loan was charged too little interest. The servicer must not require
      the borrower to make up the interest undercharge, re-allocate the borrower’s
      payment between P&I, or charge the borrower interest on the amount of the undercharge.
      the monthly payment was incorrect, but the mortgage loan interest rate was correct
      the UPB that results from the re- amortization is higher than the actual principal
      balance of the mortgage loan was overcharged, and is due a credit for the overcharge.
      Under certain conditions, the borrower is due a refund of the overcharge. the
      monthly payment was incorrect, but the mortgage loan interest rate was correct
      the UPB that results from the re- amortization is lower than the actual principal
      balance of the mortgage loan was undercharged. The servicer must not require
      the borrower to make up the diﬀerence between their actual payment and the correct
      payment, nor may it charge the borrower interest on the amount of the undercharge.
      Published May 13, 2026 531 Correcting Conversion Notice Errors The servicer
      must adhere to the following procedures if a borrower questions the servicer’s
      failure to provide advance notiﬁcation of an upcoming opportunity to exercise
      an option to convert to a ﬁxed-rate mortgage loan, in accordance with C-2.2-02,
      Assuming Responsibility for Conversion Notice Errors. The servicer must verify
      the correct interest rate for a borrower who questions the servicer’s failure
      to provide advance notiﬁcation of an upcoming opportunity to exercise the option
      to convert to a ﬁxed-rate mortgage loan. To accomplish this, the servicer must
      calculate the rate that would have been in eﬀect had the borrower been given
      timely notice of the conversion option and made their election within the required
      time frame. The interest rate must be calculated in accordance with the provisions
      of the mortgage loan instruments, and not exceed the original interest rate
      by more than the lifetime interest rate cap speciﬁed in the mortgage loan instruments.
      Refunding or Crediting Overcharges Resulting from an Incorrect Monthly Payment
      The following table provides instructions for the servicer to determine whether
      to refund or credit overcharges related to an incorrect monthly payment for
      a current ARM loan, in accordance with C-2.2-03, Determining Whether to Provide
      a Refund or Credit for Overcharges. If the ARM loan is… Then the servicer must…
      current, and the servicer has not advanced funds to cure an escrow overdraft
      give the borrower the choice between • receiving a cash refund and having the
      UPB of the mortgage loan increased to the correct amount; or • having the previous
      overpayment of principal treated as the application of a principal curtailment
      and leaving the actual, lower UPB in eﬀect. Published May 13, 2026 532 If the
      ARM loan is… Then the servicer must… current, and the servicer has advanced
      funds to cure an escrow overdraft give the borrower a choice between • having
      the overcharge credited against the servicer’s outstanding advance, or • having
      the overcharge treated as the previous application of a principal curtailment.
      If the borrower chooses a credit, the servicer must increase the UPB of the
      mortgage loan to the amount that it would have been if the payment adjustment
      had been correct. However, the servicer may decrease the borrower’s payment
      by any amount previously added to the payment to repay the servicer for its
      advance. If the borrower chooses a principal curtailment, then the actual, lower
      UPB remains in eﬀect and the borrower must continue to pay the advance as part
      of the monthly payment. delinquent, but the servicer has not advanced funds
      to cure an escrow overdraft base its action on the amount of the overcharge,
      and either • leave the actual, lower UPB in eﬀect if the overcharge is less
      than a monthly payment of P&I; or • credit the borrower if the overcharge is
      equal to one or more monthly payments of P&I by ⚬ changing the UPB of the ARM
      loan to the balance that would have been in eﬀect if the adjustment error had
      not occurred; and ⚬ re-applying the overcharge as P&I installments to advance
      the LPI date, with any remaining overages credited as a principal curtailment.
      delinquent, and the servicer has advanced funds to cure an escrow overdraft
      repay its advance and apply any remainder toward reducing or curing the delinquency.
      To repay its advance, the servicer must • increase the UPB of the ARM loan by
      the amount of the overcharge; and • reduce the monthly payment accordingly,
      if the monthly payment had been increased to repay the advance. Note: The borrower
      will not be given an option on how to credit the overcharge. Refunding or Crediting
      Overcharges Resulting from an Incorrect Monthly Payment and an Incorrect Interest
      Rate The servicer must issue a cash refund or credit if the incorrect monthly
      payment and incorrect interest rate results in a net overcharge of more than
      $1.00. The following table describes procedures the servicer must Published
      May 13, 2026 533 follow in determining whether to refund or credit overcharges
      related to an incorrect monthly payment and an incorrect interest rate, in accordance
      with C-2.2-03, Determining Whether to Provide a Refund or Credit for Overcharges.
      If the mortgage loan is… Then the servicer must… current, and the servicer has
      not advanced funds to cure an escrow overdraft send the borrower a cash refund.
      current, but the servicer has advanced funds to cure an escrow deﬁcit credit
      the overcharge by applying it to reduce the amount of the outstanding advance.
      Note: If any of the net overcharge remains after the advance is fully paid,
      the servicer must send the borrower a cash refund of the remaining amount. delinquent,
      but the servicer has not advanced funds to cure an escrow deﬁcit credit the
      borrower for the net overcharge, as follows: If the net overcharge is suﬃcient
      to bring the mortgage loan current, the servicer must • apply the overcharge
      to the past due installments, and • provide the borrower a cash refund of any
      remaining amount. If the net overcharge is not equal to the full amount of the
      delinquent monthly payments and applying the overcharge to them jeopardizes
      current or potential foreclosure proceedings, the servicer must treat the net
      overcharge as unapplied funds until the borrower submits all of the delinquent
      monthly payments. If the servicer subsequently must initiate foreclosure proceedings
      because the borrower did not submit the additional amounts requested, the servicer
      must apply the funds being held as unapplied toward the reduction of the total
      indebtedness. If the net overcharge is not equal to the full amount of the delinquent
      monthly payments, but applying the overcharge does not jeopardize foreclosure
      proceedings, the servicer must apply the overcharge to the delinquent monthly
      payments. Published May 13, 2026 534 If the mortgage loan is… Then the servicer
      must… delinquent, and the servicer has advanced funds to cure an escrow overdraft
      credit the borrower for the net overcharge by completing the steps in the following
      table. Step Servicer Action 1 Apply the overcharge to reduce the amount of the
      servicer’s outstanding advance. 2 Apply any remaining overcharge to reduce the
      delinquency. Exercising/Reporting ARM Conversions for Portfolio Mortgage Loans
      The servicer must notify Fannie Mae about the conversion of a portfolio ARM
      loan or participation pool ARM loan to a ﬁxed-rate mortgage loan when it submits
      its monthly accounting reports, in accordance with C-2.3-01, Processing ARM
      Conversions to Fixed Rate Mortgage Loans. The following table provides a timeline
      that compares the requirements for exercising and reporting conversions of ARM
      plans that have a monthly conversion option to those that have a periodic conversion
      option. Action Date Monthly Conversion Option Periodic Conversion Option Date
      by which borrower must give notice of election to convert Lender-speciﬁed date.
      Generally, the date will be in the ﬁrst 5 days of a month for conversions that
      will become eﬀective on the ﬁrst 1 day of the second month following the election
      notice. Lender-speciﬁed date. Generally, the date will be between 15 and 45
      days before the scheduled interest rate change date. Date by which borrower
      must pay conversion fee and return executed documents Lender-speciﬁed date.
      Generally, the date will fall between 5 and 45 days before the date on which
      the new converted interest rate will become eﬀective day of the second month
      following the election notice 1. Scheduled interest rate change date. Published
      May 13, 2026 535 Action Date Monthly Conversion Option Periodic Conversion Option
      Eﬀective date for new converted interest rate First 2 day of the second month
      following the election notice. Scheduled interest rate change date. Eﬀective
      date for new payment First 2 day of the month following the eﬀective date of
      the new converted interest rate. First 2 day of the month following the scheduled
      interest rate change date. Last date for notifying borrower of new payment Twenty-ﬁve
      days before the eﬀective date of the new payment. Twenty-ﬁve days before the
      eﬀective date of the new payment. Last date for reporting conversion to Fannie
      Mae Third business day of the month following the eﬀective date for the new
      payment (which is when the Fannie Mae investor reporting system reports for
      the reporting period that includes that eﬀective date are due). Third business
      day of the month following the eﬀective date for the new payment (which is when
      the Fannie Mae investor reporting system reports for the reporting period that
      includes that eﬀective date are due). Determining Fannie Mae’s Required Net
      Yield for an ARM Loan Conversion To determine Fannie Mae’s required net yield
      for ARM loans, in accordance with C-2.3-01, Processing ARM Conversions to Fixed
      Rate Mortgage Loans, see the Investor Reporting Manual for additional information.
      For inquiries related to convertible ARM plans or Fannie Mae''s required net
      yield, the servicer must contact its Fannie Mae Investor Reporting Representative
      (see F-4-02, List of Contacts). Determining the Monthly Payment and Eﬀective
      Date for an ARM Loan Conversion The following procedure provides instructions
      for determining the new monthly payment and eﬀective date, in accordance with
      C-2.3-01, Processing ARM Conversions to Fixed Rate Mortgage Loans. To calculate
      the new monthly payment, the servicer must determine the amount required to
      repay the UPB of the ARM loan in substantially equal payments, over the remaining
      term of the mortgage loan, and at the new ﬁxed interest rate. This new monthly
      payment becomes eﬀective in the month following the month in which the new ﬁxed
      interest Published May 13, 2026 536 rate goes into eﬀect, either on the ﬁrst
      day of the month; or on the applicable due date, if the mortgage loan has a
      payment due date other than the ﬁrst of the month. Repurchasing Converted MBS
      Mortgage Loans and Redelivering Them to Fannie Mae The following table provides
      additional information regarding the repurchase and redelivery of converted
      MBS mortgage loans in accordance with C-2.3-03, Repurchasing Converted MBS Mortgage
      Loans and Redelivering Them to Fannie Mae. Post-Conversion Disposition Option
      Under this option, the servicer must… Option 1: Market Rate • decide whether
      or not to redeliver the converted mortgage loan to Fannie Mae; • retain the
      interest rate risk associated with the period of time between the date the mortgage
      loan is converted and the date of any future sale of the mortgage loan; and
      • verify the mortgage loan meets the speciﬁc eligibility requirements for converted
      ARM loans that are speciﬁed in the Selling Guide. If the servicer chooses to
      redeliver the mortgage loan to Fannie Mae, it may either deliver the mortgage
      loan • as part of a new MBS pool of ﬁxed-rate mortgage loans, or • as a portfolio
      mortgage loan that must be either an actual/actual or a scheduled/actual remittance
      type. The servicer is authorized to use any outstanding commitment it has with
      Fannie Mae (or obtain a new one) for the redelivery of the mortgage loan. Option
      2: Take-Out Option Redeliver the converted mortgage loan to Fannie Mae as a
      portfolio mortgage loan. Fannie Mae does not require the servicer to re-qualify
      the borrower or to verify that the mortgage loan still meets Fannie Mae’s eligibility
      requirements. Procedures for obtaining a take-out option commitment are in the
      Selling Guide. To ensure consistent treatment of borrowers, servicers that service
      both portfolio mortgage loans and MBS mortgage loans should consider using the
      time frame required for MBS mortgage loans – which is no later than the 15th
      day of the month in which the election notice is given. 1 Published May 13,
      2026 537 Timeline assumes that the monthly payments are due on the ﬁrst day
      of each month. If not, the servicer must change these references to reﬂect the
      day of the month on which monthly payments are actually due. 2 Recent Related
      Announcements The table below provides references to recently issued Announcements
      that are related to this topic. Announcements Issue Date Announcement SVC-2023-06
      December 20, 2023'
  judgment: false
