Compliance Alliance Question of the Week

Question:
We have a few questions about mortgage payments. Our core is set up so that mortgage payments are applied in the following order:
1. The monthly escrow is put into the escrow account.
2. The remainder is applied to interest.
3. If anything remains after interest is paid, it is put toward the principle.
Are we allowed to apply mortgage payments this way? Is there anything in regulation that dictates how to apply mortgage payments?
 
Answer:
There is not a prohibition in doing that under the federal regulations. It would be up to the bank's loan agreement regarding how payments are applied. As long as the bank's loan agreement does not state otherwise, there should not be an issue with applying payments in that way.