We just had a loan customer enter the military and request rate reduction on his loan. The loan is 3 months past due and recently charged off.

Question #1. When recalculating the new payment at 6%, amortizing the remaining principal to the original maturity, the monthly payments are higher than he is paying now due to the past due status. Do we need to reamortize based on a 3 month extension to get the payments lower (which is the purpose of the rate reduction) or is this the consequence for his prior delinquency?

IMO - we do the extension as a good faith effort in the spirit of SCRA.

Question #2. Does the fact this is charged off (not forgiven) have any bearing on compliance with SCRA?

Thanks for any guideance.

You need to focus not on the payment, but first on the rate, then on the resulting payment. You'll go back to the date of active duty abd pick up from there forward at a rate no greater than 6%. If you were charging less, that is fine.

Being charged off is an internal status. It's a bank classification and bookkeeping entry with the exception that your post maturity rate could be less than 6%. I doubt that, but I don't know the rules in all the states. If the borrower came to you and said "I want to make this right, what do I owe" your response wouldn't be that it was charged off and the debt is zero. So put that aside and do the computations to ensure you don't attempt to collect more than allowed, or report it to the IRS as a larger amount than is owed if you 1099-C it.