Homeowners who are denied a loan modification are often told that they simply don’t meet the investor guidelines. But what are these guidelines, and what does this mean to homeowners who face the loss of their home? A new U.S. Treasury Department website should increase homeowners’ understanding of the modification process and the criteria used for approval.
Loans under consideration for a modification are subject to a mandatory test known as the Net Present Value (NPV). The NPV test is strictly pass or fail. Homeowners are naturally curious about what factors are used in determining the NPV, but until recently this information was not readily available.
Mortgage servicers use an NPV test to determine whether modifying the loan or foreclosure is less costly in the long run. The lender’s first objective in reviewing solutions for a borrower with a distressed property is to minimize the risk of loss to the investor. An evaluation of the likelihood that the mortgage will again go into default after the initial modification is granted is one of the criteria used in calculating the NPV. So homeowners must be able to show that they can afford to pay on a modified mortgage. Despite the best intentions, many modified mortgages end up in default a second time. Other NPV factors include how many months are likely to pass before the loan could be in default again, how likely the borrower is to bring the loan current if it isn’t modified, how much it would cost to foreclose and take possession of the property and how much the house would sell for in a foreclosure.
Recently the U.S. Treasury Department launched a Web-based tool at CheckMyNPV.com that enables homeowners to conduct a Net Present Value assessment of their own mortgage. With the tool, homeowners who have been denied a modification can compare their results with those of their servicer.
Homeowners can also use the site prior to applying for a modification as a self-evaluation tool using the same formula required of their servicer. It should take a homeowner about 15 minutes to complete the evaluation. The Treasury Department encourages homeowners to share the results of the evaluation with their mortgage servicer for a discussion of available options. In order for homeowners to effectively compare their results with those of the servicer, homeowners will have to enter the NPV values appearing in the Non-Approval Notice received from the servicer, or substitute these values with estimated NPV values.