Loans > Loan Screens > Account Information Screen Group > ARM Information Screen > Rate Caps & Negative Amortization tab

The Negative Amortization field group on the Rate Caps & Negative Amortization tab of the ARM Information screen contains information about negative amortization.

laiarmi_negativeamort

The fields in this field group are as follows:

Field

Description

Use Payment Cap

Mnemonic: LNPCAP

A checkmark in this field indicates that you want to use a payment cap. No checkmark indicates that no payment cap is to be used and amounts entered in the fields controlled by this field will be ignored. See below for more information.

When a new P/I is calculated, payment capping controls the amount the new P/I can be increased to. This is done by multiplying the current P/I by the percent in the P/I Increase Limit field below. If the newly calculated P/I is higher than allowed, the P/I will become the allowed amount.

Example: The Current P/I is $1,000 and the P/I Increase Limit is 5%. $1,000 x .05 = $50.00. The new P/I cannot be increased by more than $50.00 ($1,050).

Note: When the P/I is "capped," negative amortization comes into effect. This means that more interest is due on a loan than is collected with the payment. The difference between the interest that is due and what interest is paid is added to the principal balance of the loan at the time the payment is posted; this is known as "deferred interest." Interest then starts accruing on the higher principal balance. The next month (if the loan is set up for monthly payments), the process continues and the principal balance is again increased by the unpaid interest amount. This continues until either a new P/I is calculated or the maximum principal balance is reached.

	Note: The P/I may be calculated to be exactly the same as the interest due amount. In this scenario, the principal balance would not be increased; however, the principal balance will not be reduced as payments are posted; this is known as "interest-only payments."

Refer to the additional fields in this section because various options affect the above scenarios.

The following fields in this field group are affected when you turn on the Use Payment Cap option.

P/I Increase Limit

Frequency to Ignore P/I Limit

P/I Change Counter

P/I Change Frequency

P/I Decrease

Defer Interest At

Mnemonic: LNDFIM

This field allows you to select when to defer interest. Deferring interest means that if a P/I does not cover all of the accrued interest owing with the payment, the remaining unpaid interest is added to the loan principal balance and to the Deferred Interest field (on the Loans > Payoff screen). See below for more information.

The Deferred Interest field shows how much of the principal balance is deferred interest. For the options that never defer interest or that defer only at rate rolls, the unpaid interest remains in the Accrued Interest field on the Loans > Account Information > Account Detail screen until it is paid or deferred.

This field accepts four values, with R-Rate Roll as the default value. To change the default value, select one of the other values from the drop-down list.

"Payment" will have the interest defer immediately with each payment. That is, any unpaid interest will be added immediately to the loan principal and deferred interest fields when the payment is posted. This is the most used option.

"Rate Roll" will cause the unpaid interest to remain in accrued interest and will then defer based on the Rate Change Frequency.

"Monthend" will defer all unpaid interest at monthend. Then, when the payment is collected, it will reduce deferred interest. The interest paid to date will roll at monthend when the interest is deferred. The Date Last Accrued and Due Date (on the Account Detail screen) will roll when a payment is collected.

"Never" will never defer interest on the account.

	WARNING: The default for this field is “Rate Roll.” If the loan is not a negative amortizing loan, be sure this field is changed to “Never.” Also, the Accrued Interest field should be blank.

The following values are available from the drop-down list for this field:

DESCRIPTION

GOLDWriter MNEMONIC

Payment

LNDFIM

Rate roll (default)

N/A

Monthend

LNDEOM

Never

LNNEVR

Note: To run GOLDWriters on these fields, different mnemonics are required depending on the value in the field. To identify the loans with R (rate roll), you would request as follows:

Payment: LNDFIM EQ `N'

Monthend: LNDEOM EQ `N'

Never: LNNEVR EQ `N'`

LNPMTH EQ 7

Maximum Principal

Mnemonic: LNAMMX

This field contains the maximum amount the loan principal balance can be increased due to deferred interest (negative amortization). On negative amortizing loans, where the principal balance can increase, this field sets the maximum allowed. At the time a payment method “7” loan is opened using a 680 tran code, the system will automatically enter 125% of the original loan amount in this field. This is a required field for all payment method 7 loans. If you do not allow the principal balance to increase (negative amortizing), you must enter the original principal balance.

If a principal increase transaction or deferral of unpaid interest makes the balance exceed the amount in this field, the system gives an error message and cancels the transaction.

P/I Change Frequency

Mnemonic: LNAMPC

This field contains the frequency on which the P/I will change on this loan. It is entered in months. For example, if the P/I is supposed to change annually, “12” will be in this field. This field can be file maintained on the ARM Detail tab.

P/I Increase Limit

Mnemonic: LNAMPL

This field contains the percentage limitation of the increase or decrease to the P/I per P/I change frequency. This field is only used if a checkmark is entered in the Use Payment Cap field above. Values are entered by the user as a 3-decimal number (7.500).

P/I Decrease

Mnemonic: LNAMDC

If a checkmark is entered in this field, the system looks at the percentage in the P/I Increase Limit field above and uses that same percentage to decrease the P/I. This field defaults to a blank checkbox, indicating “No.” This field is only used if a checkmark is entered in the Use Payment Cap field above.

P/I Change Counter

Mnemonic: LNAMCC

Although this is a system-supplied field, it is file maintainable. This field indicates how many times the P/I has changed over the life of the loan, and is automatically entered by the system. It is used when the Use Payment Cap field above has a checkmark and the Frequency to Ignore P/I Limit field below is not zero. It indicates which P/I changes should do full amortization regardless of the P/I Increase Limit. The system knows when to fully amortize a P/I when this field becomes divisible by the Frequency to Ignore P/I Limit field. Example: If the Frequency to Ignore P/I Limit field is 5, then when the counter becomes 5, 10, 15, etc., the P/I is fully amortized.

Frequency to Ignore P/I Limit

Mnemonic: LNAMIG

This field indicates how many P/I changes will use the P/I increase limit. It then ignores the increase limit and the P/I will be increased to the amount required to amortize the loan over the remaining term. This field is only used if a checkmark is entered in the Use Payment Cap field above.

Use Event Letter 40

Mnemonic: LNE040

This field indicates if a special ARM change letter is to be created. If this field is checked, the ARM change letter will be created at the time of the P/I change only, not when the rate changes. Do not check this field if the P/I change frequency and the rate change frequency are the same.

This would be used, for example, if a loan has monthly rate changes but an annual P/I change. The event 40 letter will generate only when the P/I is changed, but it will display the last 12 monthly interest rates.

Amortized P/I

Mnemonic: LNAPIC

If a loan is set up for negative amortization, the system will automatically enter the P/I needed to amortize the loan over the remaining term. This amount will automatically be displayed on the ARM event letters and the bill and receipt statement. Refer to warning below.

	WARNING: Manual adjustments can be made to this field; however, it is not recommended. Regulations require the disclosure of the amortized P/I or interest only P/I under certain conditions. File maintenance to this field should only be performed by employees who understand the regulatory requirements and are sure that the amount entered is correct.

Interest Only P/I

Mnemonic: LNIPIC

If a loan is set up for negative amortization, the system will automatically enter the Interest Only P/I needed to pay just the interest that is due with the payment. This amount will automatically be displayed on the ARM event letters and the bill and receipt statement. Refer to warning below.

	WARNING: Manual adjustments can be made to this field; however, it is not recommended. Regulations require the disclosure of the amortized P/I or interest only P/I under certain conditions. File maintenance to this field should only be performed by employees who understand the regulatory requirements and are sure that the amount entered is correct.

Negative Amortization Stop Date

Mnemonic: M1NADT

This date indicates when the account will stop negative amortization.