The minimum premium for this endorsement is $25.00.
This endorsement is used to insure mortgages which secure notes which contain a variable rate of interest and a payment which provides for a situation in which the amount of the monthly payment is not, or may not be, sufficient to cover the payment of interest on the loan and the shortage in interest is then added to the principal balance of the loan causing “negative amortization”.
The endorsement provides TWO (2) forms of affirmative coverage as follows:
1) Paragraph 1 insures the validity or enforceability of the lien of the insured mortgage as a result of its provisions for changes in the rate of interest, interest on interest and negative amortization.
2) Paragraph 2 insures against any loss of the priority of the mortgage as a result of its provisions for changes in the rate of interest, interest on interest and negative amortization.
CAUTION: This endorsement may only be given if the recorded mortgage or its rider specifically provides for the changes in interest rate, interest on interest and the formula for calculating such changes in interest rate and specifically provides for negative amortization (all FANNIE MAE mortgages with the appropriate rider meets this requirement).
If this endorsement is requested for a commercial transaction and the mortgage or its rider does not provide for the changes in the interest rate, interest on interest and the formula for calculating such changes in interest rate and specifically provide for negative amortization, the endorsement may not be given.
