Writing off a protect enabled loan
Loan Write Off refers to an investment for which a Return on Investment (ROI) is highly unlikely or impossible. You need to follow the same steps to write off a protect enabled loan, as followed for other loans. However, the write off amount for a protect enabled loan considers the protect fee paid by the borrower or investor, and any investor rebate set up on the loan product. The protect fee for the written off term is discounted from the write off amount, as an indicative "Rebate on Protect" in case of an early pay off, as the borrower would no longer be availing Protect. The balance amount is considered as the written off amount in the system. Therefore, the write off value on a protect based loan is always lesser than the outstanding loan amount due to exclusion of the protect fee amount.
Similarly, the investor is paid a rebate on any protect fee paid by them if the 'Is Investor Rebated at WriteOff' option is selected as part of the Protect Fee Split setup for the related loan product. The Investor Payout job creates an Investor Loan Transaction to pay out the rebates on a pro rate basis. For example, as the loan is not be serviced further, the servicing fee may be returned on pro rate basis.
If no uncleared LPTs exist, the write off LPT is auto cleared, irrespective of any approval process, and investors are paid out based on the rebate amounts specified in the LPT.
For information on the loan write-off steps, refer to section Write Off a Loan.
Example of calculating the write off amount
Assume:
- Requested Loan Amount = 10,000, Interest Rate = 8%, Loan Term = 12 months, and Payment Start Date = April 10, 2015.
- Payments are received on time for the first month.
- Payments not received for 2nd and 3rd months (10 May, 10 June)
- Loan write-off suggestion days = 60 days
- Late Fee =
On July 10, days past due = 61. If the loan is written off on this date:
| Normal Loan | Protect Based Loan | |
|---|---|---|
| Protect Fee – 10% of the loan amount | NA | 1000 |
| Net Loan Amount | 10000 | 11000 |
| Payment Amount every month | 869.88 | 956.87 |
| Write Off Amount (Principal + Interest + Fees) | 9,196.79 + 183.94 + 180 = 9560.73 | 10,116.46 + 202.33 + 180 = 10498.79 |
| Unrecovered protect fee | Not applicable | 846.15 (pro rate basis) |
| Investor Loss | 9560.73 | 9729.56 (See below) |
Assume an investor on the loan, with investor share = 100%, Maintenance fee = 100, Service fee = 300, both fees 50% refundable in case of write off.
Marketplace value of loan for investor = loan amount + fees = 10,000+100+300 = 10,400
In case of a write off, investor loss is calculated as:
For a regular loan, loss = loan write off amount
For a protect enabled loan, loss = Write off amount - (loan amount - marketplace value of loan for investor) - prorated investor fee rebate = 10498.79 - (11,000-10,400)-(50% of 338.46) = 10498.79 - 600 - 169.23 = 9729.56