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How to defer all or part of borrower’s scheduled payment?

This article provides ideas & considerations for deferring all or part of borrower’s scheduled payment.

TIP: The comments below assume that the box under "Add Negative Amortization to" that says "Unpaid Interest" is checked square-check-solid. 

TIP: Make sure the box under "Unpaid Interest Handling" that says "Include when Calculating Interest" is not checked square (see How to edit options in loan terms).

TIP: Make sure you test and understand the difference between the Periodic Interest Accrual Method settings (found here), and how each setting affects how interest is accrued. 

OPTION 1: 

  • Accept reduced payment, i.e., 50%, and handle as a partial payment.
    • This plan requires the borrower to catch up all deferred installments.
    • When the payment comes in, the short payment is applied to Reserve.
    • When the next payment comes in, if it is enough to make a full payment, it is combined with the amount in Reserve and posted as a Regular Payment.
    • Interest Paid to Date and Next Due Date do not roll forward until the remainder of the installment is received and posted as a Regular Payment.

TIP: We have a Smart View available that displays loans where the amount in reserve is equal to or greater than the loan’s Total Regular Payment.

OPTION 2: 

  • Accept less than the scheduled payment, i.e., 50%, and post it as a Regular Payment.
    • If the reduced payment does not cover all the interest owed, it will be posted as an increase to unpaid interest.
    • Check the settings in Loan Term Options for interest handling on reduced payments.
    • Interest Paid to Date and Next Due Date are rolled forward immediately.
    • When payments resume, they would apply to the unpaid interest balance first. 

OPTION 3: 

  • Defer or skip the entire payment, i.e., the amount received is $0.00.
    • The calculated interest is negatively amortized to Unpaid Interest.
    • Check settings in Loan Term Options for interest handling on reduced payments.
    • Interest Paid to Date and Next Due Date are rolled forward immediately.
    • When payments resume, they would apply to the unpaid interest balance first.
OTHER CONSIDERATIONS:
    • ACH Processing considerations:
      • Posting payments manually does not move or roll forward the ACH Next Debit Date.

      • For skipped or deferred payments posted manually, change the ACH Next Debit Date (see How to set up borrower ACH information).

      • Using the Next Revision date may stop the processing of ACH Automated (see below).
    • COVID-19 loan considerations:
      • Consider using the Loan Code to identify the loan.
      • Add Category for COVID-19 while entering Loan Code.
        • This field is available in the Loan Grid.
        • This field is “selectable” in Selection Criteria in the Portfolio Report in Custom Reports.
        • This field could be used for other purposes as well to identify certain loan groupings.
      • Consider using Categories to identify the loan.
        • Almost all reports can be run by Categories, such as Loan Interest Accrual Report, Loan Balances Reports, Late Report, etc.
        • Smart Views can be created by Categories.
          • Letters can be produced for Smart Views.
    • Revision date considerations:
      •  The next Revision Date is an optional date in the Loan Terms Important Date area (see How to add or edit general terms of a loan).
      • When a loan’s Next Due date reaches the Next Revision Date, the loan is not available for ACH, but it is listed on an Exception Report.

    Click here for the original article and here for an additional article regarding this subject.

    NOTE: These are suggestions only. Please do your own due diligence to make sure the results meet your company's policies and procedures!

     

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