Freddie Mac Single-Family Seller/Servicer Guide Section 8103.3 — Application of Mortgage payments

Freddie Mac Single-Family Seller/Servicer Guide Section 8103.3 — Application of Mortgage payments

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

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