Effective October 1, 2018, Cenlar will be adjusting how we handle the reduction of interest rates to the 6% maximum required under the Servicemembers Civil Relief Act (“SCRA”). We will be implementing the straight interest rate reduction methodology for ALL loans entitled to an interest rate reduction under SCRA. This change is being implemented to provide a consistent approach for how we handle SCRA interest rate reductions for Freddie Mac, Ginnie Mae, and Fannie Mae mortgage-backed securities and pooled from portfolio loans, where we currently apply the subsidy method.
The straight rate methodology will allow the loan to amortize at a 6% interest rate during the protection period, thus providing an additional interest benefit that is not captured through the subsidy method. Cenlar will adjust the service fee in the servicing system to a negative value, and recoup the difference from the GSEs. Those funds will be credited to back to our impacted business partners.
Loans setup under the subsidy method prior to October 1, 2018, will continue to be serviced as such until the SCRA protection end date.
Please see below for information about Ginnie Mae State Interest Remittance.
Ginnie Mae State Interest Remittance
As you may be aware, several states offer service members benefits similar to the Service members Civil Relief Act (SCRA). While the statutory requirements vary slightly, they generally extend federal SCRA benefits to National Guard Members called up for active duty by the state Attorney General or governor. In certain states, these benefits include the reduction in the interest rate from the Note rate to 6% for eligible, active duty service members.
We would like to advise you that Ginnie Mae does not acknowledge interest rate reductions resulting from state military benefits with respect to the monthly interest remittance. Ginnie Mae requires the interest to be passed through at the original Note rate, even if a reduction has been made due to state SCRA requirements. Ginnie Mae will not issue reimbursement for the interest differential as they do for federal SCRA.
As a result, you may incur a loss of the interest differential for Ginnie Mae loans that are setup with an interest rate reduction stemming from state benefits.