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Performing Loans And Nonperforming Loans

By on April 4, 2019

A performing loan is as defined by the Federal Financial Institutions Examinations Council to be a loan that is not more than 90 days past due, interest accrued, not in a workout status, and payment is anticipated.

It must be noted that the terms a particular mortgage agreement can play a huge role in determining it as a performing loan.

A nonperforming loan is a loan in which the lender is making a loss from. These loans are basically over 90 days due, placed on non-accrual, and are deemed as delinquency.

You need to know: What lenders hope you never learn about mortgages

In managing these loans, lenders often try various ways to get back as much as possible from the debtors such as loan modifications, short sales, refinancing, etc.

When everything failed, they write them off as bad debts.

Borrowers can expect their credit records to take a heavy beating.

A performing nonperforming loan is a loan in which the borrower has been making timely payments and meeting the debt obligations according to the requirements on the repayment schedule. But the collateral has fallen so much in value that it is unable to support the original loan amount.

In such circumstances, lenders would demand more collateral, cash top ups, or full repayment.

The categorization of performing and nonperforming loans can also play a material role in the ratings of mortgage-backed securities when they are traded on the secondary market.



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