We have a borrower that is complaining about the way we post monthly mortgage loan payments. Their note is a standard Fannie Mae note that clearly describes payments "will be applied as of its scheduled due date", which is the first of each month. The interest accrual is set at 30/360.

This borrower always pays early. For example, a payment was submitted on April 12, but effective dated to May 1. They are claiming their other banks don't process payments in this way, but rather give credit when the payment is received. We have no idea what type of loans are at the other banks. These are investment properties, so it's possible they could be commercial.

This just makes me nervous. Was there a change in mortgage servicing regulations that would have effected how mortgage loan payments were processed? Isn't the language in the note the way we should be handling monthly payments?

No change - you service each loan based on the legal contract. One loan is not serviced the same as the next, just because it is a loan.

Mel, since you mentioned investment property, the other banks might have the loans in their commercial rather than residential department, where the notes might have the different language (as Randy mentioned).

That's a great point, Rocky.

What caused me to pause was the citing below from Reg Z. Does "except" in the first sentence under (i) Periodic payments allow the bank to effective date (credit) the payment a couple weeks later? Would the language in the note/contract trump the regulation? Thanks!

1026.36
(c) Servicing practices. For purposes of this paragraph (c), the terms "servicer" and "servicing" have the same meanings as provided in 12 CFR 1024.2(b).

(1) Payment processing. In connection with a closed-end consumer credit transaction secured by a consumer’s principal dwelling:

(i) Periodic payments. No servicer shall fail to credit a periodic payment to the consumer's loan account as of the date of receipt, except when a delay in crediting does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency, or except as provided in paragraph (c)(1)(iii) of this section. A periodic payment, as used in this paragraph (c), is an amount sufficient to cover principal, interest, and escrow (if applicable) for a given billing cycle. A payment qualifies as a periodic payment even if it does not include amounts required to cover late fees, other fees, or non-escrow payments a servicer has advanced on a consumer's behalf.

The bank is crediting the account when the payment is being made. Because of the nature of the "amortization", the loan is actually being prepaid.

Commercial and most consumer, the customer is paying interest for as long as they borrow the money. Make a payment and they will calculate the accrued interest from the last payment, deduct it from the principal and credit the rest to the loan balance.

Because most mortgage loans are sold in the 2ndary market, they use a 30/360 payment. Each payment is considered to be for a 30 day period and there are 360 days in the year. Your payments are based on an amortization schedule, except for the first and last odd days. Imagine the servicing and investor issues of each one had to be individually calculated, especially at payoff if the person historically paid a few days late. To compensate, usually no late fee until the payment is 15 days or more delinquent.

Thanks Rocky! Very helpful.

Mel, just a side note from what has already been said. Assuming "investment property" is referring to rental property which most likely would make it a business purpose loan Reg. Z and RESPA would not apply. You will service the loan according to the note and any investor requirements.