Transaction Code 10 - Trust Deposit is used to recognize the receipt of funds into the servicer’s ledger that belongs to some other entity (a Lender). This transaction is run automatically for the total amount of the payment received by the borrower when the following conditions (defining trust accounting setup) are met:
- The loan is a member of a loan group that is configured with Servicing Options.
- Within the Servicing Options, the Loan Group is tied to a Disbursement Account. This represents a bank account where the money held in trust for the lender sits, and from which checks to that lender may be cut.
The Trust Deposit transaction is a General Ledger posting which will create a debit to the Trust-Cash Account and a credit to the Trust-Undisbursed Funds.
When a payment is made, and this transaction is automatically run, Transaction Code 20 - Trust Disbursement is also automatically run. This transaction creates a debit to Trust-Undisbursed Funds and a credit to PH Accounts Payable. The Trust Disbursement also creates a Voucher for cutting a check to the Lender. The net result of both transactions being run for the same amount (which is what will happen if there is no servicing fee on the payment) is a debit to Trust-Cash Account and a credit to PH Accounts Payable. The act of printing the check creates a debit to PH Accounts Payable and a credit to Trust-Cash Account so that the net GL after the check has been remitted is a complete wash.
The General Ledger accounts involved in the Principal and Interest Payment transactions: Cash, Loan Asset, and Accrued Interest, represent the GL accounts of the lender, and not the servicer, and unless the servicer is also managing the ledger of the lender, they need not necessarily be defined at all.
ExampleBorrower makes a payment of $300, of which $100 is an interest payment and $200 is a principal payment.
|Lender’s Loan Asset|
|Lender’s Accrued Interest Receivable|
|Trust-Cash (Servicer’s GL)|
|Trust-Undisbursed Funds (Servicer’s GL)|
|PH Accounts Payable (Servicer’s GL)|
When the payment is made, the following transactions are run:
|Transaction||Debit GL/Amount||Credit GL/Amount|
|200 - Principal Payment||Lender’s Cash: $200||Lender’s Loan Asset: $200|
|202 - Interest Payment||Lender’s Cash: $100||Lender’s Accrued Interest: $100|
|10 - Trust Deposit||Trust - Cash: $300||Trust - Undisbursed Funds: $300|
|20 - Trust Disbursement||Trust - Undisbursed Funds: $300||PH Accounts Payable: $300|
From the point of view of the Lender’s GL, this leaves us with $300 cash, $200 reduced from the loan balance (Loan Asset), and $100 of interest payment received.
From the point of view of the Servicer’s GL, this leaves us with $300 of the Lender's Cash in Trust, and a $300 credit in Accounts Payable corresponding to an outstanding $300 voucher.
For information on the other Trust transaction code involved, see Trust Disbursement.
For information on how to configure the automation of the Servicing Fee, see Servicing Fee - Recurring Transaction.