The straight line method (code 0) is the default. It is most often used for loans with no scheduled payment terms (demand loans) and revolving lines of credit. It is calculated as follows:

Method 1 (code 1) is rarely used. It is similar to Rule of 78s (code 2). The amount is calculated by the following formula:

The rule of 78s method (code 2) calculates the amount by taking the difference between the Date Opened to the date the item was last amortized, and the amount figured from the Date Opened to the current date. If the loan has an action code 78 and date (Deferred Fees Start Date as set up on the Loans > Account Information > Actions, Holds, and Event Letters screen), it calculates by taking the difference between the Date Last Amortized and the action code date.

The formula for each of these amounts is displayed in the table below. "RINO" is the remaining installments in months (Date Opened to the Date Last Amortized, unless the loan has action code 78, in which case it is the difference between the Date Last Amortized and the Action Code Date for action code 78). "OINO" is the original installments (Date Opened to the current date).

Example 1:

A loan was opened in July 2010 with original deferred fees of $100. It was last amortized on June 2011. Today's date is July 1, 2011. This amortization method would be calculated as follows:

[11 X (11 + 1)] % [12 X (12 + 1)] X $100 = $84.62

Example 2:

A loan was opened in July 2010, but wasn't set to start deferring fees of $100 until October 2010 (action code 78 date). The date the loan was last amortized was June 2011, and today's date is July 1, 2011. This amortization method would be calculated as follows:

The difference between action code 78 date and the last amortization date is 9 months (RINO).

[9 X (9 + 1)] % [12 X (12 + 1)] X $100 = $57.69

The interest FASB 91 amortization (code 3) uses the interest rate on the account (subject to options) in the calculation, and the data in the Term/Rate schedule. The objective of this interest method is to calculate periodic interest income at a constant effective yield.

Various options exist that determine which rate will be used for the amortization and Internal Rate of Return (IRR) calculations. LNRATE is the default rate used. For LIP loans, LNRATE is substituted with LNLRAT, the LIP interest rate. LNOAPR is used if no valid rate is found.

For ARM loans (payment method 7) or payment method 4 or 6 with the Use ARM Fields? field checked, one of four rates can be used in place of the loan rate (LNRATE). Note: If a loan opens and closes in the same month, this amortization method will still amortize fees, costs, discount/gains, premium/losses accordingly. The four possible rate options available are:

1.The default is the Original Rate (LNAMOA) , pulled from the Loans > Account Information > ARM Information screen.

2.OPT 4 AMRT uses the Current Rate (LNAMRT) , pulled from the ARM Information screen.

3.OPT F YMGN uses the index (LNAMPT) plus the margin (LNAMOF), both pulled from the ARM Information screen. Note: The index, in this case, is stored in the Original Rate field. The system takes the Original Rate field and adds it to the Interest Rate Margin (LNAMOF).

4.The Teaser Rate (LNTSRT) from the ARM Information screen is used if the loan has a teaser rate, and the amortization is during the teaser period. Note: For LIP loans, the system uses the LIP Disbursed Balance (LNLBAL) on the Loans > Account Information > Account Detail screen instead of the LNPBAL.

Calculations

The interest FASB 91 method calculations for fees, costs, discount/gain, and premium/loss are basically the same except the fees and discount/gain subtract some fields while the costs and premium/loss add fields.

FASB 91 Amortization

The FASB 91 amortization method uses a modified effective yield calculation. A single absolute value equation is used to arrive at the amount amortized. This will allow for Internal Rate of Return rates to be higher or lower than normally expected.

The FASB 91 amortization is as follows:

ABS[((JRATE * PBAL) / 12) - (ORATE * CARRY) / 12))] = AMOUNT AMORTIZED

where:

JRATE is one of the following:

•Loan rate (LNRATE)

•If the loan is an LIP, LNLRAT is used.

For payment method 7 or payment method 4 or 6 rate-sensitive loans, four different rates can be used:

•The original accrual rate (LNAMOA) is the default, if no option is set.

•If using teaser rates, the Teaser Rate (LNTSRT) is used, if it is equal to the accrual rate.

•If institution option OPT4 AMRT (Use Accrual Rate for ARMs) is set, the current accrual rate (LNAMRT) is used.

•If institution option OPTF YMGN (Use Index Plus Margin for ARMs) is set, the index plus margin (LNAMOA + LNANOF) is used.

If none of the above-mentioned rates are valid, the original APR rate (LNOAPR) is used.

PBAL is the loan principal balance (LNPBAL), or the disbursed balance if the loan is an LIP.

ORATE is the effective rate from the fees/cost/discount/premium rate schedule on the Deferred Fees screen.

CARRY = (PBAL - Remaining Fee) for fees

CARRY = (PBAL - Remaining Discount) for discounts

CARRY = (PBAL + Remaining Cost) for costs

CARRY = (PBAL + Remaining Premium) for premiums

Deferred Fees in CIM GOLD with Interest Rate Changes and Principal Decreases

The following discusses the amortization of deferred fees, costs, discounts, and premiums as this relates to interest rate changes and principal decreases.

Interest Rate Changes

These changes will only be applicable to accounts using amortization method 3 (Interest FASB 91).

When a loan payment is posted and the interest rate is file maintained during the process (the rate rolls), that information is stored in transaction logs (tranlogs). During the afterhours process, the tranlogs are used to identify that the rate was changed and the program will recalculate a new effective rate. (Note: The Deferred Fees & Costs Effective Rate Change Report (FPSRP287) must be set up to update rates in the afterhours.) The program will also update the loan Rate on the Deferred Fees screen with the new effective rate. This new effective rate is used in the amortization process (generally at monthend).

If any of the three Term/Rate fields have data in them, the time period for the last term field with data is used to determine if the system should automatically update the Rate field. That Term field is compared to today. If today's date is within that term, then the corresponding Rate field is updated. If today is not within the last term time frame, then the Rate field will not be updated.

Example 1:

A loan opened 8-1-11 with a term of 360 months. In the Term 1 field, "360" was entered. Anytime a rate changes, the Rate field will be updated because 360 covers the full time period of the loan.

Example 2:

A loan opened 8-1-11 with a term of 360 months. The Term 1 field has 60. The Term 2 field has 300. As the loan rate changes, the Rate field will not be changed until 60 months after 8-1-11 (which would be 8-1-16). Anytime the rate changes during the final 300 months the Rate will be changed.

Example 3:

A loan opened 8-1-11 with a term of 360 months.

Term 1 is 12, Rate 1 is 5.00 would end 8-1-12; rate will never be updated

Term 2 is 12, Rate 2 is 6.00 would end 8-1-13; rate will never be updated

Term 3 is 336, Rate 3 is 7.00 rate will be updated any time during this term

The new effective rate is calculated using the Internal Rate of Return formula (IRR). This formula uses the carry amount, which is the current Principal Balance minus the Remaining Fees. (See below for variations based on fees, costs, premiums, etc.)

Note: This calculation is performed for all four of the deferred types (fees, costs, discounts, and premiums only if amortization method 3 is on the record). Fees and discounts/gains subtract the remaining; costs and premiums/loss add the remaining.

Effective rates can be recalculated for all loan payment methods; however, they would generally only be used for ARMs (payment method 7, or 6 with the Use ARM Fields? field set) or daily simple interest (payment method 6 without the Use ARM Fields? field set). This is controlled by GOLDPoint Systems using report setup options for the Deferred Fees/Cost Effective Rate Change Report (FPSRP287).

Deferred Fees & Cost Effective Rate Change Report

The Deferred Fees & Cost Effective Rate Change Report (FPSRP287) identifies all accounts for which a new effective rate was calculated or attempted to be calculated. The report shows effective rate changes for deferred fees, costs, premiums, or discounts. This is a daily report.

Institution Options

Three institution options are available with this amortization method. The first option affects principal decreases (see Principal Decreases below). The second and third options instruct the amortization program to use a different rate in the amortization and IRR calculations for payment method 7 or rate-sensitive payment method 4 or 6 loans. These options are institution-wide; once set, all loans are affected by the option. Options can only be changed by submitting a work order to GOLDPoint Systems.

The three options are:

1.Amortize at Time of Principal Decrease (OP17 AYPD)

2.Use Accrual Rate for ARMs Method (OPT4 AMRT)

3.Use Index Plus Margin for ARMs (OPTF YMGN)

Principal Decreases

As a principal decrease is posted to an account, your institution could have the system calculate and post the amortization amount pertaining to the principal decrease to the G/L. This would be in addition to the regular monthend amortization that will also be processed for the account.

Overview

Institution option AYPD (Amortize Yields with Principal Decrease) must be set.

This is only applicable to accounts using amortization method 3 (Interest FASB 91).

This feature affects individual principal decreases posted in conjunction with a field credit to principal (tran code 2510-47 or 2510-48) or principal decreases posted in conjunction with a loan payment (tran code 2600-16 or 2600-17).

The teller transaction (tran code 2510-47 (check) and tran code 2510-48 (journal)) must be used if you want to calculate the income on the principal decrease when it is posted as an individual principal decrease.

When a principal decrease is posted (tran code 2510 (field credit to principal)) during the transaction, the following actions will occur:

1.The amount of the principal decrease will be divided by the current principal balance prior to the principal decrease to determine the percentage of the principal decrease.

2.The remaining fee is multiplied by the percentage and that amount will immediately be amortized.

Example: Current principal balance is $100,000, and a principal decrease of $20,000 would equal a 20% reduction. If the remaining fees are $1,500.00, then 20% x $1,500.00 would be $300.00. The $300.00 would be posted to income or expense. This amount will appear in loan history as a separate item and will be posted to the G/L during the afterhours.

3.The date of last amortization will not be updated. This will allow the regular amortization to process at monthend.

When the amortization of the principal decrease is processed, it will appear on the appropriate Deferred Fees & Costs daily reports: the Deferred Costs/Premiums Amortization Report (FPSRP035), the Deferred Fees/Discounts Amortization Report (FPSRP077), and the Deferred MSRs Amortization Report (FPSRP156).

The teller transaction (tran code 2600-16 (check) and tran code 2600-17 (journal)) must be used if you want to calculate the income on the principal decrease when it is posted as part of the payment.

This transaction will post a payment and, if extra funds are included, it will use the institution setup Payment Posting Priority screen to determine if the extra funds go to additional payments or will be posted as a principal decrease. The teller only has to post one transaction and the program will then post each item as a separate transaction. This transaction replaces the loan payment transaction the tellers currently use.

If a principal decrease is part of the transaction and if institution option AYPD is set, this transaction will also amortize the fee during the process. The monthend amortization continues to process but will use the new remaining amount.

Transaction origination codes (TORCS) identify which G/L (income or expense) the amortization should be posted to.

•TORC 40  When a loan is sold on a percentage basis

•TORC 56  Regular amortization

•TORC 80  When a loan is sold 100%

For the securities method (code 004), the system does not calculate an amount. This method merely identifies that these accounts are securities. Generally, the discount/gain or premium/loss fields are used. The institution usually performs the calculations.

The calculation for effective yield is very involved and has several steps. This calculation is only valid for precomputed interest loans (payment method 3). The steps are as follows:

1.Find the monthend date for the month of processing.

2.Find the monthend date for the first due date (LN1DUE).

3.Find the elapsed months by calculating the difference in these in actual days (#Days) and then use this number to determine the months (#Months) as follows:

•If the processing monthend is less than the monthend of the first due date, the difference is 0. (#Months = 0)

•If the two dates are the same, then the number of months is 1. (#Months = 1)

•If #Days is less than 30, then the number of months is 2. (#Months = 2)

•If #Days is less than 366 days, then use a factor of 29.0, else use 30.3 in the following formula to figure #Months: #Months = (#Days / factor) + 9.

4.Figure the number of paid months to three decimal places.

PdMos = (LNOBAL - LNPBAL) / LNOPIC

5.Get the whole part of this number by truncating the paid months.

PdWhole = truncated PDMos

6.Get the fraction part by subtracting the whole months from the paid months.

PdFract = PdMos - PdWhole

7.Delinquency is then determined by:

#Delq = #Months - PdMos

If #Delq is greater than 2, then the loan is delinquent, otherwise it is current.

8.We now have all of the information we need to calculate the effective yield for the loan. If the loan is not delinquent, then an amortization is done for the number of elapsed months (#Months) using original principal before add-ons (LN78OP), the original APR (LNOAPR), and the original P/I constant (LNOPIC).

Earned = FV(LNOAPR/12,#Months,-LNOPIC) (Approximate Excel® equivalent)

The program loops making the payment calculations and accumulating the interest amount.

* RATE = LNOAPR / 12

* BALANCE = LN78OP

* PMTLOOP start

* INT = BALANCE * RATE

* CumiInt = CumiInt + INT

* BALANCE = BALANCE - (LNOPIC - INT)

* PMTLOOP end

* Do PMTLOOP #Months times

9.If the loan is delinquent, then two amortizations are performed. In the first, we add 2 to PdWhole and amortize the loan for that number of months. Then we add 3 to PdWhole and amortize again. The answer from the first amortization is subtracted from the answer of the second amortization, multiplied by PdFract and then added back to the answer of the first amortization. This is the amount of interest earned.

Earned = ((Ans2 - Ans1) * PdFract) + Ans1

10.The earned amount is adjusted by the percentage that this original fee amount (OrigFee) is of the total fees (TotFees). The fee total is calculated by subtracting the original principal balance from the original loan balance.

TotFees = LNOBAL - LN78OP

The percentage is calculated by dividing the original fee amount by TotFees.

Fee% = OrigFee / Totfees

The earned amount is then adjusted by multiplying it by this percentage.

Earned = Earned * Fee%

11.The unearned amount is calculated by subtracting the earned amount from the original unearned amount. This becomes the new unearned/remaining amount.

(Unearned = LN78OI - Earned) or

(Unearned = F1FORG - Earned)

12.This new unearned amount is subtracted from the unearned amount on file to figure the amount earned this month. This is done to keep the G/L in sync with the file.

(Earned_this_Month = LN78CG - Unearned) or

(Earned_this_Month = F1GREM - Unearned)

Additional calculations are needed when amortizing fees and deferred yields. The procedure follows steps 1-7 for the Unearned G/L Interest and adds the following steps:

1.The APR for the loan with this fee/yield (Rate1) is calculated using these formulas:

OrigAmt = the original fee/cost/etc amount

Bal1 = LN78OP + LN78OI + OrigAmt

PI1 = Bal1 / LNTERM

Rate1 = RATE(LNTERM,-PI1,Bal1)*12 (Approximate Excel equivalent)

2.The APR for the loan without the fee/yield (Rate2) is calculated using these formulas:

Bal2 = LN78OP + LN78OI

PI2 = Bal2 / LNTERM

Rate2 = RATE(LNTERM,-PI2,Bal2)*12 (Approximate Excel equivalent)

3.The difference in these figures is calculated to determine the APR (DiffRate) for the fee/yield.

DiffRate = Rate1 - Rate2

4.A payment constant (DiffPI) is calculated using this new information.

DiffPI = ROUND(PMT(DiffRate/12,LNTERM,OrigAmt)*-1,2)

(Approximate Excel equivalent)

5.We now have all of the information we need to calculate the effective yield for an amortizing fee or a deferred yield. The difference here is that we are earning the fee or yield amount and not the interest on it.

* RATE = DiffRate / 12

* BALANCE = OrigAmt

* PMTLOOP start

* INT = BALANCE * RATE

* CumiPrin = CumiPrin + (DiffPI - INT)

* BALANCE = BALANCE - (DiffPI - INT)

* PMTLOOP end

* Do PMTLOOP #Months times

The calculation for Level Yield 2 is only valid for precomputed interest loans (payment method 3) with a monthly payment frequency (LNFREQ=1). The steps are as follows:

1.The original amount of interest (LN78OI, F1FORG, INNORG, LNFORG, LNCORG, LNPORG, or LNDORG) is saved in the field "ORIG." This is used at the end of the calculations to determine what percentage of all the add-on interest belongs to the earned amount that is being calculated.

2.Figure the first of next month (NXTMON). The calculation will amortize to this date.

EXTINT = LNOBAL - (ORIGTERM x LNOPIC)

a.Subtracting 30 days from LN1DUE using 365 days as the base.

b.Figure the days between this date and the first of the month of the first due date (LN1DUE) using a 360 days base.

c.This answer becomes the partial month days (PARTDAYS).

d.Skip to step 14.

a.Figure the number of days difference from the date opened (LNOPND) and the first of next month (FRSTMON) using 360 days as a base.

b.This answer becomes the partial month days (PARTDAYS).

REMDAYS = 30 - PARTDAYS

a.If LN78EI = Y then:

b.If LN78EI = N then:

•The original principal (LN78OP).

•A payment frequency of 1.

•The term in OTERM.

•The P/I constant in PICN.

•The approximate Excel equivalent of the formula is: JRATE = Rate(term,-LNOPIC,LN78OP) * 12

CUMUINT = (BALANCE * JRATE * PARTDAYS) / 360

We now have all of the information we need to calculate the level yield for the loan. This calculation is done by making pseudo-payments on the loan. The program loops for the number of whole months (#MONTHS) and performs the following calculations: