Loan Modification

Lending Lending Loan Modification

This document provides technical guidance for configuring and utilizing the Loan Modification Module within the FLEX system. This optional module enables credit unions to adjust specific loan terms for individual loans for a defined period, including skipping payments, modifying payment amounts, and changing interest rates.

1. Overview

The Loan Modification Module facilitates temporary changes to loan terms. Configuration is required at two levels:

  • Loan Type Configuration: Defining general modification parameters for a specific loan type.
  • Individual Loan Configuration: Applying specific modifications to a member’s individual loan through Loan Maintenance or Loan Processing.

2. Loan Type Configuration

Loan Type Configuration is the initial step to enable loan modifications for a specific loan product.

2.1 Accessing Type Configuration

  1. Navigate to the FLEX Main Menu.
  2. Go to System Administration.
  3. Select General Configuration.
  4. Choose Type Configuration.

2.2 Editing Loan Types

  1. Within the Type Configuration screen, click on the Loan Types tab.
  2. Highlight the desired loan type from the list.
  3. Click the Edit button.
  4. Click the Loan Modification tab to access the modification parameters for that loan type.

2.3 Temporary Loan Modification Parameters

The Loan Modification tab (within Edit Loan Type) allows you to define global settings for temporary loan modifications for the selected loan type.

  • Allow Temporary Loan Modifications:
    • Purpose: If checked, this enables the system to track due date modifications for this loan type.
    • Effect: Makes the Loan Modifications and TDR Tracking tabs available in Loan Maintenance for individual loans of this type.
  • Maximum # of Countable Sequences:
    • Purpose: Defines the maximum number of total changes (a combination of rate changes, reduced payment changes, and skip payment changes) allowed for a single loan of this type over its entire term.
    • Note: All modifications must be sequenced and marked as “countable” through the Modifications Tab in Loan Maintenance on an individual loan record for these limits to be tracked.
  • Rate Change Only Parameters:
    • Maximum # of Countable Rate Changes: Indicates the maximum number of countable interest rate changes allowed for this loan type.
  • Reduce Payment Only Parameters:
    • Maximum # of Countable Reduce Payments: Indicates the maximum number of countable reduced payments allowed for this loan type.
  • Skip Payment Only Parameters:
    • Maximum # of Countable Skip Payments: Indicates the maximum number of countable skip payment changes allowed for this loan type.
  • Loan Modification Group:
    • Allows association of the loan type with a predefined loan modification group (e.g., CDBL – CREDIT BUILDER).

2.4 Overriding Maximums (Security)

Program security can be configured to allow overrides of the defined maximums.

  • Add the program name LNSKIP to Security Profiles.

3. Loan Maintenance (Individual Loan Modification)

Once Loan Modification has been activated in Loan Type Configuration, a new Modification tab becomes available within Loan Maintenance for individual loans.

3.1 Accessing Loan Modification

  1. Open the desired loan record in Loan Maintenance.
  2. Click on the Modification tab.

3.2 Managing Modification Records

The Modification tab displays a Sequence List of all existing modifications for the loan.

  • Adding a New Modification: Click the Add button.
  • Editing an Existing Modification: Highlight the record in the Sequence List and click Edit.
  • Deleting an Existing Modification: Highlight the record in the Sequence List and click Delete.

3.3 Add Modification Details

When adding or editing a modification, the Add Modification window appears with the following fields:

  • Sequence Start:
    • Purpose: Enter the date when the modification terms will begin.
    • Behavior: End-of-Day (EOD) processing will initiate the action on this date.
    • Note: This date is not maintainable after the action has been initiated.
  • Sequence End:
    • Purpose: Enter the date when the modification terms will end.
    • Behavior: EOD processing for the Sequence End date will initiate the change.
    • Note: The Sequence Start and Sequence End dates cannot be the same. The Sequence End date can only be maintained up to the date the action has ended.
  • Start Action Date/End Action Date:
    • Purpose: These dates are automatically updated by the system when the action is actually triggered by EOD processing.
    • Note: These dates are not maintainable by the user.
  • Sequence Number:
    • Purpose: A number assigned by the system.
    • Behavior: When adding a new record, the sequence number will be 1. For recurring sequences, each time the sequence is reset, the sequence number will increment (e.g., a skipped December payment that is recurring will be reset for the next December and the sequence number will become 2).
  • Operation Type:
    • Purpose: Indicates the type of loan modification being applied.
    • Options:
      • Skip Payment: Skips the loan payment for the due date falling within the defined Sequence Start/End dates.
      • Reduce Payment: Reduces the loan payment amount during the Sequence Start/End dates.
        • When selected, fields for Reduced Payment amount and Return Payment amount (defaults to current payment) become available.
      • Rate Change: Reduces the loan interest rate during the Sequence Start/End dates.
        • When selected, fields for Reduced Rate and Return Rate (defaults to current interest rate) become available.
  • Payment Due Date: Displays the current payment due date from the loan record.
  • Loan Payment Amount: Displays the current loan payment amount from the loan record.
  • Recurring Sequence:
    • Purpose: Check this box to make the sequence recurring.
    • Behavior: Once the initial sequence is completed, the system will create a new record with updated Start/Stop dates and an incremented Sequence Number.
  • Include in Count:
    • Purpose: Check this box to identify the sequence as countable against the maximum countable sequence limits defined in the Loan Type Configuration.
  • Grace Days:
    • Purpose: The modification will not take place if the loan is delinquent by more than the number of grace days entered here.
  • Reason For Change:
    • Purpose: Enter a description identifying the reason for the modification. This description will appear on relevant reports.

Note: Modification sequences start and stop during End-of-Day (EOD) processing. For example, if a skip payment record is added to skip a December payment, the due date will not advance to January until EOD processing completes.

4. Reports

The FLEX system provides several reports related to loan modifications:

  • Loan Modifications Report:
    • Generation: Generated through the End-of-Day process, but can also be generated at any time.
    • Content: Includes modifications meeting entered parameters and information such as:
      • Account/Suffix
      • Change Type
      • Entry Date
      • Begin/End Dates
      • Grace Days
      • Reason
  • Skip Pay Loan Listing:
    • Generation: Based on a user-entered date range.
    • Content: Displays loans with skip payments within the specified dates, including:
      • Account
      • Suffix
      • Sequence Start Date
      • Sequence End Date
  • Skip/Reduced Loan Action Report:
    • Generation: Generated through the End-of-Day process.
    • Content: Displays:
      • Account Number
      • Suffix
      • Teller
      • Sequence Change Action Date
      • Sequence Skip/Reduced Beginning Sequence Date
      • Sequence Skip/Reduced End Sequence Date
      • Action Taken Description
      • Count of Sequences Started, Stopped, and/or Created