The Mortgagee must apply Borrower payments in the following order:
- to mortgage insurance premiums (MIP) due, if any;
- to charges for ground rents, taxes, special assessments, including any assessments related to a Property Assessed Clean Energy (PACE) obligation, flood insurance premiums, if required, and fire and other hazard insurance premiums;
- to interest on the Mortgage;
- to amortization of the principal of the Mortgage; and
- to Late Charges, provided, that any amounts owed for Late Charges must be handled consistent with Truth-in-Lending Act (TILA) regulations.
The Mortgagee may only apply funds for payments of optional insurance coverage premiums after the application of funds to all other elements of the monthly Mortgage Payment.
For policy information see:
- Handbook 4000.1 III.A.1.e.ii. at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh, and
- Mortgagee Letter 2017-06 at https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee