jack their payment up $1,300
Are you saying their monthly payment will increase $1300? That must have been one heck of an initial deposit and I would hate to be the loan officer when their customer calls them and wants to know what the heck happened.
Your options are outlined in 1024.17. Keep in mind you are not limited to the 12 month period. That is the minimum allowable time.
(C) The servicer may require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period.
Since the loan officer messed up you may want to consider a separate reduced cost loan to repay the shortage.
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The opinions expressed are mine and they are not to be taken as legal advice.