Rookie question - loan mod
Just doing my research and wrapping my head around NPLs. I have a question about the timing of the modification:
Example: my borrower has 10k in arrears, and an interest rate of 12%
Let's say I call him up and we agree on him paying 5k in arrears, I forgive the other 5k and I lower his rate to 10%. Who goes first? Does he pay me the $5,000, and then I modify the loan after I receive payment? What protection does the borrower have that we made the deal and all they have to pay is 5k and I'll forgive the other 5? I guess I'm unsure how that process works.
You sign an agreement with them (workout agreement, loan modification, forbearance agreement) that spells out the details. This agreement is conditional on XYZ conditions such as, in your scenario, them making a 5k upfront payment.
easy enough - thanks
You probably should get an attorney to assist you with the loan modification paperwork and any state laws. In your scenario the modification wouldn't be implemented unless if they pay you the $5,000. The modification is contingent upon them paying you. Also, probably makes more sense for you to capitalize the other $5,000 back into the loan. Why forgive it?
Originally posted by @Jeremy K.:
Just doing my research and wrapping my head around NPLs. I have a question about the timing of the modification:
Example: my borrower has 10k in arrears, and an interest rate of 12%
Let's say I call him up and we agree on him paying 5k in arrears, I forgive the other 5k and I lower his rate to 10%. Who goes first? Does he pay me the $5,000, and then I modify the loan after I receive payment? What protection does the borrower have that we made the deal and all they have to pay is 5k and I'll forgive the other 5? I guess I'm unsure how that process works.
Generally, we like to put the borrowers on a Trial Payment Plan (TPP) for a min of 6 months as well. If they meet that milestone, we then relieve the remaining arrears - it gives them the incentive to make their payments on time.