In which payment form is a servicer not required to advance funds for delinquent payments?

• A. Actual/Actual
• B. Net/Net
• C. Actual/360
• D. Interest Only

Answer: (A)

In the context of mortgage servicing, different payment forms dictate the responsibilities of the servicer concerning advancing funds for delinquent payments.

The Actual/Actual method calculates interest based on the actual number of days in a month and uses the actual number of days in a period to determine the interest owed. In this system, the servicer is typically not required to advance funds for delinquent payments because the borrower is expected to pay interest based on the actual payment due. If payments are missed, the calculation does not penalize the servicer since they only collect what is due at that time without any obligation to cover the shortfall.

In contrast, other payment forms may impose different requirements on servicers regarding advancing funds. For example, the Net/Net payment form typically requires that servicers account for a set, consistent payment, and may have different implications for delinquent amounts. Actual/360 refers to a specific method of calculating interest, which can also involve servicer obligations when payments are delayed. Interest Only payments structure the payments differently but still imply certain responsibilities from the servicer regarding advancing funds.

Therefore, since Actual/Actual does not obligate the servicer to advance funds if there are delinquencies, it makes this option the correct choice.