How should we calculate the loan amounts once the servicemember is no longer on active duty? Aside from going back to the original interest rate, do we recalculate based on current balance or with original terms?

(3) PREVENTION OF ACCELERATION OF PRINCIPAL- 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.

That section is regarding the calculation that should be made for the period of active duty. My question is more in the lines of: After I have limited the payments and the interest rate during the active duty period, once the servicemember is no longer on active duty and therefore interest rate is no longer limited, how do we calculate the new payments for the rest of the loan term? Do we calculate based on the original terms or based on the current balance and time left?

Disclaimer: I'm no expert on this topic and Section 527(a) of the SCRA may have been interpreted to mean something other than its plain language.

If I'm reading Section 527 correctly, there should be no need to recalculate anything if you have been in compliance since you received the servicemember's written notice required by Section 527(b). Ignoring 1098 issues, it appears that you would treat the loan as if there is a lender-funded buy-down of the interest rate to 6%. The total monthly payment you post should stay the same but the borrower is only required to pay the amount that remains after you calculate and post the forgiven interest. When the servicemember is no longer eligible for the interest forgiveness, you simply stop subsidizing the interest. This approach leaves the outstanding principal balance the same as it would have been without any interest rate relief.

Ok, thanks!

Regarding the Servicemembers Civil Relief Act, when we reduce the interest rate to 6% for a level payment closed end loan, will that cause each monthly payment going forward to vary, or may we determine a lower monthly payment that is consistent each month? I have some conflicting information. Some say we may re-amortize the loan to a lower level payment at the lower 6% rate. Others say we may not do this but rather we must recalculate the monthly payment every month. If the monthly payment changes from month to month this makes it harder on the Servicemenber to know what the actual payment should be. Sorry if this is not the right thread. My first time posting!

We were told by the OCC to lower the payments to amortize the remaining term by the lower interest rate of 6% during the SCRA period. We were also criticized by not lowering the payment amount when the borrower wanted his monthly payments to stay the same. OCC wanted us to bill the borrower for the lower amount and they could send in more if they choose to do so.

We were also criticized by not lowering the payment amount when the borrower wanted his monthly payments to stay the same. OCC wanted us to bill the borrower for the lower amount and they could send in more if they choose to do so.

The servicemember can waive their benefits in writing (see 517(a)). If you did not have the servicemember's wishes in writing then the OCC is correct. If you have the servicemember's written waiver to keep the payments the same then the OCC is wrong.