Loan Asset Reallocation

Loan reallocation, sometimes referred to as an asset swap, is the process of selling all or part of one internal investor's portion of a loan to another internal investor to achieve performance results. While the concept of reallocation is simple, the mechanics of such transactions are rather complex.
The process begins with the determination of the sale price. You can sell the assets at market value or at book value, in which case you would not recognize any gain or loss. You should have the flexibility to determine whether any deferred revenue should be taken in as income or recognized as part of any gain or loss on the sale.
The reallocation process must then "rollback" all transactions processed on the loan to the effective date of the reallocation. Deferred revenue, affecting the seller's book value, must be recognized as income to the effective date. Accrued interest should be calculated and credited to the seller and is due from the buyer. Fees paid to a servicer need to be apportioned based on the loan amount sold and prorated based on the payment cycle.
Without affecting the loan balance due from the borrower, both investors' balances need to be adjusted to reflect the new loan allocation. Depending on your policy, you may also need to transfer cash between bank accounts to reflect the sale and to adjust the escrow accounts held on behalf of the borrower. Historical information reflecting both the original and new ownership structures need to be retained as it may impact your regulatory reporting.
If you sold the asset with a premium or discount, a new deferred revenue recognition stream needs to be established for the buy side of the transaction, which impacts only this investor's book value. Once the new ownership structure is put into effect, the reallocation process must then reprocess any transaction that was reversed during the rollback process.
SS&C's loan management system can lead you through the entire reallocation process with just a few simple steps as shown in the screens below.