226.20 doesn't say specifically what principal balance to use in preparing the annual ARM notice.

HUD ML 2004-10 says the ARM notice "....is not affected by delinquencies or foreclosures so long as the mortgage debt exists. It is the mortgagee's responsibility to see that its collection actions continually update the mortgage debt...."

So - if the borrower isn't paying down the mortgage principal balance as the loan terms dictate, should the mortgage servicer just use the outstanding principal balance of the mortgage as of the date the ARM notice is prepared? Does anyone use any other amount? If so, why?

Thanks in advance as usual -

"is not affected by delinquencies" - you use the scheduled amortization schdule as past due payments are already past due - you do not re-amortize the loan to include those amounts.

That's what is confusing me. Borrower got mortgage for $100,000, has paid it down to $90,000, but as of the current interest change date, should have paid it down to $80,000. Do we prepare the ARM notice as if only $80,000 needs to be paid, or on the $90,000 that's due? The difference in monthly P&I payment amount could be considerable.

You are saying that this loan is $10,000 past due? How could you not be in foreclosure proceedings?

Obviously this is a hypothetical example, but anecdotally, I think we've all heard about mortgages that are staying in pre-foreclosure sale status for well over 12 months. Imagine a situation in which a borrower can't and/or doesn't pay, tries a HAMP-style loss mitigation program, can't stick with that; even declares ch. 13 bankruptcy and is somewhat compliant with it; meanwhile the mortgage servicer realizes that the loan and servicing and maybe collection effort documentation have flaws and is trying to rectify those before pursuing the foreclosure sale....the months drag on, and next thing you know - it's time for the annual ARM notice.

In such circumstances - what happens to the good 'ol annual ARM notice calculations?