www.hudclips.org DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FEDERAL HOUSING ADMINISTRATION WASHINGTON, D. C. 20411 March 31, 1976 ASSISTANT SECRETARY-COMMISSIONER MORTGAGEE LETTER 76-7 TO: ALL APPROVED MORTGAGEES SUBJECT: APPLICATION OF MORTGAGE PAYMENTS PRIOR TO FINAL ENDORSEMENT The purpose of this letter is to clarify the computation and application of mortgage payments in those cases where amortization is scheduled to commence before final endorsement of the mortgage note, and a formal deferment of amortization has not been effected and approved by HUD. In order to fully amortize the mortgage amount over the mortgage term, it is necessary that principal payments (based on the full mortgage amount) and payments to the replacement reserve fund at the full scheduled amount, be collected starting at the first payment date recited in the note and mortgage, whether or not the full amount of mortgage proceeds has been disbursed. This procedure assures that principal payments will be current at final endorsement and that the mortgagee's records will agree with the amortization schedule when it is received. Interest during this period is due on the outstanding principal balance (amount of mortgage proceeds disbursed less the amount of any principal payments collected). In the event of a deferment of commencement of principal payments, payments to the replacement reserve fund are deferred for the same period. Payments due for escrows are not affected by a deferment of principal payments. For your convenience the following monthly initial curtail rates (per unit) and monthly acceleration factors are provided for use in those cases where amortization payments commence prior to final endorsement and prior to receipt of an amortization schedule. Rates for other than 40-year terms will be furnished on request by the HUD Office of Finance and Accounting, Multifamily Mortgage Branch. _____________________________________________________________________ 2 Level Annuity Monthly Payment Plan Mortgage Term - 40 Years No. of Payments - 480 Monthly Initial Monthly Acceleration Interest Principal Factor Applied to Rate Curtail Rate Principal Payments 7% .00038098 1.00583333 7 1/4% .00035505 1.00604167 7 1/2% .00033071 1.00625000 7 3/4% .00030787 1.00645833 8% .00028645 1.00666667 8 1/4% .00026639 1.00687500 8 1/2% .00024761 1.00708333 8 3/4% .00023004 1.00729167 9% .00021362 1.00750000 9 1/4% .00019827 1.00770833 9 1/2% .00018395 1.00791667 The following example illustrates how this operates in the case of a 7 1/4% mortgage note of $1,000,000 with a disbursed amount of $900,000. Disbursed Mortgage* Amount Amount $900,000.00 $1,000,000.00 1st pmt. to principal ($1,000,000 x .00035505) 355.05 355.05 $899,644.95 $ 999,644.95 2nd pmt. to principal ($355.05 x 1.00604167) 357.20 357.20 $899,287.75 $ 999,287.75 3rd pmt. to principal ($357.20 x 1.00604167) 359.36 359.36 etc. $898,928.39 $ 998,928.39 * Provided there is no change in the mortgage amount, the figures shown in this column should agree with the amortization schedule when it is issued. In the event the mortgage is increased or decreased at final endorsement, any payments to principal prior to final based on the original committed amount would not, of course, agree with a schedule prepared for a mortgage in a different amount. It would then be necessary at final endorsement to recompute the amount of principal due monthly from the commencement of amortization. This would result in an additional amount due toward principal, or a refund of principal, as the case may be. For example, if the $1,000,000 mortgage cited above was increased to $1,250,000 at final endorsement, the revised computation would be: $1,250,000.00 1st pmt. to principal ($1,250,000 x .00035505) 443.81 $1,249,556.19 2nd pmt. to principal ($443.81 x 1.00604167) 446.49 $1,249,109.70 3rd pmt. to principal ($446.49 x 1.00604167) 449.19 etc. $1,248,660.51 _____________________________________________________________________ 3 If final endorsement occurred between the third and fourth payments, an additional amount of $267.88 would be collected from the mortgagor to bring the mortgage current (difference between principal collected in each of the examples). The interest payments for the period prior to final endorsement will not agree with the amortization schedule since, in preparing the schedule, no consideration is given to other than interest on the full mortgage. In all mortgages, the monthly acceleration factor is always to be applied to the immediately preceding payment. Sincerely, David S. Cook _____________________________________________________________________