Payment Event Steps

7.8.12 Payment Event Steps

The following are descriptions of the Payment Event Steps:

Calculate Interest Cash Flow(s)

The amount of interest to be paid on a Payment Date is calculated as follows:

Table 7-8 Example of Calculate Interest Cash Flow

Interest Cash Flow	Calculation
Interest cash flow gross	Current net par balance x gross rate per payment
Interest cash flow net	Current net par balance x net rate per payment
Interest cash flow transfer rate	Currency net par balance x transfer rate per payment

Note:

Rule of 78's Exception: The Rule of 78's loans have a Pre-computed Interest Schedule.

Rate per Payment Accrual Adjustment

The Annual Coupon Rate must be adjusted to a rate per payment. The Accrual Basis Code defines how this adjustment should be made.

Accrual Factor Codes rate per payment for a June 30 payment (annual rate = 6.0%, payment frequency = 3 months)

Table 7-9 Example of Accrual Basis Code with Payment Adjustment and Rate per Payment

Accrual Basis Code	Payment Adjustment	Rate per Payment
30/360	(330)/360 6.0	1.500%
30/365	(330)/365 6.0	14795%
30/Actual	90/365 * 6.0	1.4795%
Actual/Actual	(30+31+30)/365 * 6.0	1.4959%
Actual/35	(30+31+30)/365 * 6.0	1.4959%
Actual/360	(30+31+30)/360 * 6.0	1.5167%
Business/252	(320)/252 6.0	1.4285%

Note:

For Business/252 Accrual Basis, the holiday calendar is used to determine the number of business days that exist in a given month. The calculation is generally, n/252, where "n" is the number of business days in the accrual period over an, assumed 252 business days in the year.

This formula assumes a single rate per payment period. If an instrument reprices multiple times within a payment period, only the last repricing event affects the Interest Cash Flow.

Rate per Payment Compounding Adjustment

Compounding is applied to the rate used in interest calculation if the compounding frequency is less than the payment frequency. The compounding formula that is applied to the current rate is as follows:

Table 7-10 Example of Rate per Payment with Compounding Adjustment

Compounding Code	Calculation
Simple	No compounding is calculated
At Maturity	No compounding is calculated
Continuous	e^(rate per payment) - 1
Monthly, Quarterly, Semi-Annually, Annually	(1+ rate per pmt/cmp pds per pmt)^(cmp pds per pmt) - 1

Rate per Payment - Stub and Extended Payment Adjustment
An adjustment may be made if the expected days in the payment are different than the actual days in the payment.

The number of days between the next payment date and the last payment date is compared to the payment frequency, specified in days. The payment frequency specified in days depends on the month the payment occurs. If these numbers are not equal, the interest cash flow is adjusted by the ratio (next payment date - last payment date) /payment frequency in days.

On the last payment processed in the modeling horizon, the number of days between the maturity date and the last payment before the maturity date is compared to the payment frequency specified in days. The payment frequency specified in days depends on the month in which the maturity date occurs. If these numbers are not equal, the Interest Cash Flow is adjusted by the ratio (maturity date - last payment date)/ payment frequency in days.
Calculate Current Payment for Patterns and Schedules
For Amortization Patterns, the payment amount can be defined independently for each payment date. Therefore, on each payment, the payment amount must be calculated according to the characteristics defined for that date. Payment amounts can be driven by several different factors. These following factors are each explained:

Percent of Original Payment
- Oracle Asset Liability Management
  On the first modeled payment on a detailed instrument record, the amount in the current payment column is assumed to accurately represent the payment amount as of the next payment date. If this instrument record is partially sold, the current payment is multiplied by (100-percent sold) to get the net payment amount.
  
  If this is the first payment made by a new business record, the payment amount is calculated using the original balance, original rate, and the original number of payments. The original number of payments is calculated by using the amortization term, as specified through the Maturity Mix Rule or Transaction Strategies Rule, and the original payment frequency.
  
  On subsequent payment dates, Oracle calculates the amount paid by multiplying the pattern percent by the amount in the original payment amount column, adjusted for percent sold, if applicable. The pattern percent is the percent of original payment specified in the user interface for that payment.
- Oracle Funds Transfer Pricing
  For standard transfer pricing, the model calculates the payment amount for each payment that falls between the last reprice date and the next reprice date (adjustable-rate instruments) or between the origination date and maturity date (fixed-rate instruments) by using the original payment from the instrument record and applying the pattern percent from the user interface.
  
  For remaining term transfer pricing, the model calculates the payment amount in the same manner as described earlier for Oracle ALM.
Percent of Current Payment
- Oracle Asset Liability Management and Transfer Pricing
  On the payment date, Oracle determines the amount to be paid by first calculating a new payment according to the active characteristics, including the current balance, current rate, current payment frequency, and calculated the remaining number of payments. The remaining number of payments is calculated by determining the amount of time remaining in the amortization term and dividing this term by the current payment frequency.
  
  After the payment has been calculated, the pattern percent is applied.
Percent of Current Balance
- Oracle Asset Liability Management
  Percent of Current Balance is applicable only for Level Principal payment patterns. On the first modeled payment, the amount in the current payment column is assumed to accurately represent the payment amount as of the next payment date. If the instrument is partially sold, the amount should be multiplied by (100- percent sold) to get the net payment amount.
  
  For all subsequent payments, the payment amount should be calculated at the time of payment by multiplying the outstanding balance by the pattern percent.
- Oracle Funds Transfer Pricing
  Calculations for Transfer Pricing work similarly to ALM. However, for fixed-rate instruments, modeling begins at the origination date, using the original balance. For adjustable-rate instruments, modeling begins at the Last Reprice Date, using the Last Reprice Date Balance.
Percent of Original Balance
- Oracle Asset Liability Management and Transfer Pricing
  Percent of Original Balance is applicable only for Level Principal payment patterns. On the first modeled payment, the amount in the current payment column is assumed to accurately represent the payment amount as of the next payment date. If the instrument is partially sold, the amount should be multiplied by (100- percent sold) to get the net payment amount.
  
  For all subsequent payments, the payment amount should be calculated at the time of payment by multiplying the original balance, net of participations, by the pattern percent.
Absolute Value
- Oracle Asset Liability Management
  Absolute Value is available for detailed instruments; it cannot be used for new business instruments. On the first modeled payment, the amount in the current payment column is assumed to accurately represent the payment amount as of the next payment date. If the instrument is partially sold, the amount should be multiplied by (100-percent sold) to get the net payment amount.
  
  For all subsequent payments, the absolute value amount from the pattern is used. If the instrument has a percent sold, the percent sold is applied to the absolute payment amount.
- Oracle Funds Transfer Pricing
  For Standard Transfer Pricing, the Absolute Payment Amount is used, adjusted for the participation percent.
Interest Only
- Oracle Asset Liability Management and Transfer Pricing
  On all interest only payments, the payment amount is calculated as the interest due on that date. No reference is made to the current payment column from the detailed instrument record. Any payments in the current payment column are ignored.
Calculate Principal Runoff
Principal Runoff is a function of the amortization type of the instrument and the current payment. The current payment on a conventionally amortizing record represents the total P&I payment, while the current payment on a level principal record represents the principal portion of the total payment.

Simple Amortization (code = 700, 802, and any of the Non-Amortizing Pattern Codes)

General Case: Principal Runoff = 0

Interest Credited: -1 * interest cash flow gross

Conventional Amortization (code = 100, 500, 600, 800, and any conventionally amortizing pattern codes)

Principal Runoff = current payment - interest cash flow gross

Lease Amortization (code = 840)

Principal Runoff = current payment - interest cash flow gross

Level Principal Amortization (code = 820, 801, and any other level principal amortizing pattern codes)

Principal Runoff = current payment

Annuity Amortization (code = 850)

Principal Runoff = current payment * -1

Rule of 78's (code = 710)

Principal Runoff = current payment - interest cash flow gross
Special Negative Amortization Check
If the principal runoff is negative and the instrument record is adjustable neg-am; then additional checks must be made to ensure that the record is not exceeding neg-am limits. The check that is made is the following:

-1 * principal runoff + neg am balancem > neg am limitt /100 * original balancer

If this condition is true, the payment is not made. The payment is recalculated (see Payment Calculation Event). After the new payment has been calculated, the Scheduled Principal Runoff is recalculated, based on the new payment information.
Maturity Date Case
If the Payment Date is also the Maturity Date, then the remaining balance must be paid off. Principal At Maturity = Current Balancem - Scheduled Principal Runoff
Update Current Balance
The current balance must be updated to reflect the principal portion of the payments and any interest credited.

Current Balancem = Current Balancem - Principal Runoff - Principal At Maturity + Interest Credited
Update Remaining Number of Payments
After payment has been made, the underlying information must be updated in predation for the next event.

The remaining number of payments is reduced by 1. If the remaining number of payments is zero, the modeling for this instrument is complete.

Remaining Paymentsm = Remaining Paymentsm - 1
Update Next Payment Date
For Standard Amortization Instruments, the next payment date is set equal to the current payment date plus the payment frequency.

Next payment datem = Current payment date + Payment frequency

If the instrument is an Amortization Schedule, the next payment date is determined from the dates in the schedule table.

If the instrument is an Amortization Pattern, the next payment date is determined by incrementing the Current Payment Date by the current payment frequency for relative patterns. For absolute patterns, the next payment date is determined by the next consecutive date in the pattern.

If the remaining number of payments is equal to 1, or the next payment date is greater than the maturity date, the next payment date is set equal to the maturity date.