1. Cash Flow Engine Reference Guide
  2. Cash Flow Dictionary
  3. Cash Flow Columns
  4. Negative Amortization Amount (NEG_AMRT_AMT)
  5. Module Usage

8.2.85.2 Module Usage

The Oracle ALM and Funds Transfer Pricing adjustable-type Cash Flow Methodologies reference NEG_AMRT_AMT in calculating the current payment for negative amortization-type accounts. This is relevant only for adjustable-rate accounts with AMRT_TYPE_CD = 600.

  1. In a negatively amortizing record, the CUR_PAYMENT is less than the principal and interest that is due on the payment date. The interest portion that is not included in the payment goes to two places. It is added to the NEG_AMRT_ AMT field and is added back to the principal amount. Because the NEG_ AMRT_AMT balance is already included in the outstanding principal balance, NEG_AMRT_AMT is not explicitly used when the cash flow engine fully re-amortizes the account.
  2. NEG_AMRT_AMT is used by the Cash Flow Engine to keep track of negative amortization separately from non-negative amortization (normal) principal balance. It is separate for two reasons:
    • Because the Cash Flow Engine pays down the negatively amortized portion before the principal portion, a separation of the two amounts must be done to enable the application to identify what portion of the principal balance is negatively amortized.
    • When calculating the current payment, the Cash Flow Engine uses NEG_ AMRT_AMT in its check to see if NEG_AMRT_LIMIT has been exceeded.

    Following is the process of events in regards to NEG_AMRT_AMT and related negative amortization fields:

  3. Record is currently negatively amortizing because the payment amount, as defined by CUR_PAYMENT, is not enough to cover the principal and an interest portion. The unpaid interest at each payment date goes into the NEG_AMRT_ AMT field and back into the principal.
  4. While calculating a payment event (the payment date), if the cash flow engine calculates negative principal runoff, it additionally checks the negative amortization limit (NEG_AMRT_LIMIT) to ensure that the current NEG_AMRT_ AMT is not exceeding its limit. NEG_AMRT_LIMIT is defined as a percentage of the original principal balance. If NEG_AMRT_AMT is exceeding this limit, the cash flow engine recalculates the payment amount to fully amortize the instrument.
  5. However, when deriving the recalculated payment amount after a NEG_ AMRT_LIMIT has been exceeded, the cash flow engine also applies payment decrease/increase limits per period (PMT_DECR_CYCLE, PMT_INCR_CYCLE) and payment decrease/increase limits for the life of the record (PMT_DECR_ LIFE, PMT_INCR_LIFE). Because these fields limit how much the CUR_ PAYMENT can be changed, the record may continue to negatively amortize even after a NEG_AMRT_LIMIT has been exceeded. If negative amortization does continue, the NEG_AMRT_AMT continues to grow.
  6. The Cash Flow Engine also attempts to recalculate the negatively amortizing payment amount on a PMT_ADJUST_DATE. Just like a payment recalculation for a NEG_AMRT_ LIMIT, a payment recalculation on the PMT_ADJUST_DATE takes into account the effects of payment decrease/increase limits per period and payment decrease/increase limits for the life of the record. This provides for additional negative amortization to occur even after the PMT_ADJUST_DATE has recalculated the payment amount. PMT_ADJUST_DATE is incremented forward by the PMT_CHG_FREQ field until the maturity.
  7. In addition to PMT_ADJUST_DATE and NEG_AMRT_LIMIT, the record can experience a payment recalculation on the negative amortization equalization date (NEG_AMRT_EQ_DATE). On this date, the record's CUR_PAYMENT will be fully re-amortized. NEG_AMRT_EQ_DATE will ignore payment decrease/increase limits per period and payment decrease/increase limits for the life of the record. Therefore, after the payment recalculation of a NEG_ AMRT_EQ_DATE, the record will no longer be negatively amortizing and the NEG_AMRT_EQ_DATE is incremented forward by the NEG_AMRT_EQ_FREQ until maturity.