Currently, for installment loans under the SCRA, we rerun the original amortization schedule but with a 6% interest rate. This returns a lower monthly regular payment amount, yet when you compare the amortization schedules line by line for each month, the principal split may run slightly higher at times depending on where you are in the term of the loan, yet overall the principal is paid back over the full original term, not required to be sooner. We lower the rate to 6% and change the regular payment to the new payment amount shown on the revised amortization schedule.

We just received audit findings where they have indicated that we need to monitor each loan and adjust monthly so that the billed principal remains the same as the original amortization schedule for every month.

Is that a correct finding? Is their recommendation standard practice at other institutions? Thanks for any help.

What the SCRA says is that:

"The amount of any periodic payment due from a servicemember
under the terms of the instrument that created an obligation
or liability covered by this section shall be reduced by the
amount of the interest forgiven under paragraph (2) that is
allocable to the period for which such payment is made."

(2) refers to 6%. So what should happen technically is that the interest on that payment goes to no greater than 6%.

The industry standard is to reduce the rate and reamortize the loan. What your audit calls for is the technically correct method. The difference between the two can vary with the terms, but won't be hugely different. Although you'd have to run some numbers to see what that might be for your loan.