The 411 on Incomplete Conversion Loan Balances


August 29, 2012

Striking a balance between “critical” and “optional” data

You just purchased a bundle of loans. You need to enter all of these loans into the Nortridge Loan System. Now the fun begins.

This blog is about doing conversion loans, because unless you purchased newly-originated loans, you are NOT going to want to enter these as new loans and enter every past payment.

A “conversion loan" in NLS is a loan that is entered as of a certain date, past the beginning of its life span, and must be entered with balances for that date. Some of the values that may be entered on the Balances tab of the conversion loan screen are “Mission Critical” which requires the entering of correct values relative to the conversion date ("Interest Accrued Thru Date"), otherwise the loan will not behave properly. However, some of the values on the Balances tab are only necessary for the initialization of certain values on the loan’s Statistics tab, so, if you don't have them, the statistics may be off, but the loan will still accrue and bill correctly. This is a good thing, because it is all too common that purchased loans arrive with incomplete conversion data.

The key is knowing which Balances are required and which are optional to make the loan work properly. The critical balances are: Current Principal, Current Interest, Current Late Charges, Total Principal Advanced, Total Past Due Interest, Total Past Due Principal, Total Past Due Late Charges, Number of Payments Made (now calculated automatically by the system based on the parameters next due date, first due date, and payment period), and Suspense Balance.

Optional balances include: Year to Date Principal Advanced, Total Interest Paid, Total Late Charges Paid, Year to Date Late Charges Paid, Last Payment Date, Last Payment Amount, and the counters for the number of times past due. These are all nice if you can get them. If not, there’s no reason to lose sleep.

The Year to Date Interest Paid is a special case, and it could be critical if you must issue 1098 reports to borrowers. If a 1098 is required for all interest paid this year, then this value MUST be entered, as it is the starting point and all subsequent interest payments will be added to it. If, on the other hand, the previous servicer is responsible for issuing a 1098 for the time period in which they were servicing the loan, then you MUST enter 0.00 in this field, as you want the interest paid statistic for the loan to represent ONLY the interest that has been paid since you stated servicing the loan. It is therefore important that you know (or find out) if the previous servicer will be issuing a 1098.

And don't forget: Make sure the balances agree with the Accrued Thru date. My uncle Albert always said that the balance is meaningless if you don't know what day it is for, because a loan is an object in motion.