Paying off or Pre-closing a Protect Enabled Loan
There may be situations where a borrower repays the loan early, or makes a single payment to pay-off the loan. In such cases, the contract is marked for closure based on the payment if:
- the payment received from the borrower is equal to the payoff amount for that day, or,
- the sum of the payment amount + any rebate offered to the borrower on the protect fee, falls within the payoff tolerance specified for the contract.
If any of the conditions are met, when you save the payment transaction, the contract status changes to Active - Marked for Closure. In the next run of the SOD job, the Loan Closure job processes all such contracts and creates the following LPTs under Other Transactions:
- Rebate LPT: This transaction calculates the rebate payable to investors as per the protect split defined for the contract, and if the Is Investor Rebated at Payoff, or the Is Investor Rebated On Refinance, as applicable, is selected. This transaction is created with the same payment mode as that of the last transaction on the contract, and with the Rebate Payment check box selected. When the Investor Payout job runs, investors are paid out based on their investment share, from this amount.
- Closure LPT: This transaction is created to adjust the difference in the outstanding amount and the borrower payment, that is attributable to the payoff tolerance. This transaction is created with the same payment mode as that of the last transaction on the contract, and with the Closure Tolerance Payment check box selected.
Rebate calculation within pre-bill period - Rebate calculation during payoff is dependent on the number of terms remaining on a contract. To correctly calculate the remaining terms for loans paid off between the bill generation date and bill due date, for example, during the pre-bill days, the system computes the next due date based on the current system date. It ignores the Next Due Date updated on the contract by the Billing job upon bill generation. For example, consider a loan with monthly payments created on January 4, with pre-bill days as 3. If the payoff occurs on February 3, the system considers February 4 as the next due date to calculate rebate and payoff amounts. The Billing job on the other hand, updates the Next Due Date in the contract to March 4 immediately upon generating the February bill, even though the current due date has not yet passed.
The selected check boxes can be read by the ACH filegen job, which excludes such transactions from the NACHA file created for bank processing. Once these transactions are processed, the outstanding amounts are brought to zero and the contract is closed with status Closed - Obligations Met.
Lenders must create a custom class to include the Closure LPTs in the ACH filegen job. The Rebate LPTs are ignored in the current job, and should also be ignored by the custom filegen job for the files going to banks.
If you are upgrading from a previous version of CL Loan, refer to the Pre-closure of Protect Enabled Loans section of the Q2 Lon Servicing Administration Guide for information on setting up this contract status.