Carol H Tucker Passionate about knowledge management and organizational development, expert in loan servicing, virtual world denizen and community facilitator, and a DISNEY fan
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beladona Memorial Be warned:in this very rich environment where you can immerse yourself so completely, your emotions will become engaged -- and not everyone is cognizant of that. Among the many excellent features of SL, there is no auto-return on hearts, so be wary of where your's wanders...
When I was in consumer lending and settled a loan, I always recommended that the customer read the documents -- provided them ahead of time if they wanted so that they could do it before coming to the settlement table. My intrepretation of those documents was: "this says we are nice people and we are giving you the money to buy this property and you are nice people and are going to pay us back according to the terms and conditions of the note. The rest of it tells you what happens if you don't pay us back."
What happens on my end when the borrower doesn't make the payment when it is due:
there is a grace period before the late charge is assessed. During this period, interest is being accrued on a higher amount of principal than originally caluculated [amortization schedules assume that you are always making your payment exactly on the due date even when the bank is closed], but that is pretty much transparent to you until the payoff is requested and you can't understand why it is more than you expected.
you may or may not get a reminder that your payment was due
the day after the grace period is over [either the 11th or 16th day depending on your note], a late charge is assessed and a notice is generated telling you that
sometime before you go 30 days past due, you probably get a phone call [we used to call this "dialing for dollars" after the old TV show ]and another letter is sent out
once you go over 30 days past due, your loan is now flagged on all management reports and you start getting nasty grams and phone calls
when you are 60 days past due, the risk rating on your loan is lowered and the bank has to reserve a higher amount against losses. At this point you are turned over to a collections expert and the communications start to get mean.
at 90 days past due, your loan probably goes on non-accrual, which means it is now classified as a potential loss. If they are escrowing, the bank is paying out funds to keep the insurance and taxes current that they have not collected and the principal may be increased as a result [depending on the terms of your note]
at 120 days past due, your loan becomes eligible for foreclosure in most states.
So what this means is that if the payment was due on April 1st, the homeowner is not threatened with foreclosure until July 30th. During that time, the lender has had to reserve increasing amounts against the increasing likelihood that the loan will go bad.
What does it mean when you have to reserve funds?
It means you debit income and credit the Loan Loss Reserve.
Which means not only has the lender lost the interest income, you have incurred the expenses for collection [legal and appraisal at the least], you have paid taxes and insurance out of your own pocket, and you have to take the entire amount of the loan out of your income
..... but the borrower is considered the injured party if you go to foreclosure.
CEOExpress
