Definition Of Unpaid Principal Balance?

[Sue Bishop]

With regards to the above.

1. Is it also known as:

a.  "outstanding balance"? And:

b.  the balance owed to the note holder?

2.  Does anyone know of an online dictionary specifically for notes, mortgages etc?

Thanks

[Dion DePaoli]

While the industry does have many commonly used acronyms and terms the utility of those lacks conformity. Any different agent in the market can use UPB, Current Balance, Unpaid Balance, etc all meaning UPB.

The unpaid principal balance is the amount of outstanding principal balance of the loan.  It along with "Current Balance" are probably the two most popular terms meaning the same idea.

Since the industry does is not overly normalized it is important to understand the field definitions (the terms in a data set) from any given agent in the market.  "Outstanding Balance" could in fact mean the payoff amount instead of the UPB.  I have seen some data sets where the definition is purposely blurred to increase bidding amounts.  When in doubt, ask.

Technically, UPB is not the balance owed to the holder as the holder is entitled to principal, interest, fees and advances in commonly structured notes.  This means that the borrower's payoff amount, which is the amount of funds needed to release/satisfy the loan, can exceed the amount of principal balance on a loan.  

In the simplest of examples, if we have a UPB of $45 and a payoff is requested for the loan the amount due will exceed $45 mainly due to the per diem interest required to pay.  So at the beginning of week 2 in the payoff month the total due would $46.  At week 4 the balance due would $47.  (numbers simply made for example)  The point is the borrower at any given time owes the principal balance but interest accrues in the arrears.  The borrower pays this month for last month's use of the money, if you will.  So there is daily interest that accumulates and depending on the exact day the total payment is made the daily interest is added to the unpaid principal balance to create the payoff amount.  

In a reverse application, when a payoff is requested the UPB is reduced by any amounts held in suspense.  Usually suspense balances do not get extremely high but in today's day and age of distressed loan servicing suspense balances can and do accumulate decent balances.  A suspense balance is money not yet applied to the loan account.  If for some reason the loan had a large suspense balance then the payoff amount would be less than the UPB.

Just for the sake of discussion, there are also scenarios where the loan is structured to have a reduced payoff for achieving certain milestones.  These mainly deal with loans through local and federal government agencies meant to stabilize or revitalize specific areas.  Like a loan received to rehab an historic property.  It may contain terms which forgive principal every 5 years and at 15 years is not payable.  However prepayment before those milestones results in a payoff including the UPB and interest as a penalty.  

The distinction here is yes, the UPB is the amount of "unpaid principal due on the loan" but that is not necessarily the same as "the amount due the holder".

What?  You didn't think it was going to be an easy answer, did you?