Currently: consumer loan secured by primary residence, under a forbearance agreement (non-accrual). The LO wants to refinance and put the loan back on accrual and collect the secondary accrual, but in monthly installments in addition to the monthly P&I and Escrow for the refinancing.

Since we cannot capitalize this interest, how do we collect it?

Can the secondary accrual be collected through an escrow agreement? Should a separate agreement be executed through an attorney? Must the collection of the secondary accrual be disclosed in the GFE/TIL/HUD?

I'll take s stab at this from the accounting point of view and not the mortgage servicing side (not my forte):

Typically one expects the customer to have made regular payments for 6 or so months before placing most loans back on accrual - which in your case might equal the amount of interest due.

I would contact your auditors to determine if you could place a loan back on accrual without showing the capacity of repayment or how you would treat those unpaid interest accruals accounting-wise. Normally a loan under a Forebearance Agreement, with past due interest outstanding, isn't "re-booked" as a good asset.

Thanks