Check My Net Present Value NPV updated for 2013 loan modifications

by Michael Nazarinia of LoanModHelpCenter.com and RESTReportMatters.com

Homeowners trying to get a loan modification should be familiar with the 2013 Net Present Value (NPV) tools used when evaluating a residential loan modification. In fact, many homeowners seeking a loan modification are waiting for a decision from their mortgage servicer based on the NPV of their modification, among other factors.

In the simplest of terms, according to the Making Home Affordable presentation of NPV on May 2nd, 2013, the concept of NPV " compares the value of a dollar today to the value of the same dollar in the future, taking inflation and investment returns into account" originally credited to the definition found at www.investopedia.com.

This trusted advisor online presentation for the Making Home Affordable HAMP NPV (Net Present Value) tool online revealed the updated software release for the free website software.

The website, www.checkmynpv.com, uses the same underlying formula as that of HAMP servicers, to conduct an NPV evaluation with their own estimated inputs.

However, the site does not evaluate for any proprietary, or jumbo, or in-house modifications that are approved at the rate of 5 to every 1 HAMP modification.

The free tool is very helpful as an estimator and not "decision" software tool that the mortgage servicer has to accept from a homeowner.

Principal reduction is not evaluated on this free site but can be evaluated in the private, non-MHA affiliated, third party software based on HAMP formulas called "loan disposition analysis" www.RESTReportMatters.com and www.LoanModHelpCenter.com who this author is affiliated with and can help obtain a principal reduction or in-house non-HAMP qualfied proprietary loan modification evaluation or service for a no-upfront service fee.

Principal reduction is always at the servicer's and investor's discretion depending on home value and is based on the NPV of that mod scenario with principal reduction when compared to alternatives without principal reduction.

Fannie Mae and Freddie Mac do not offer principal reduction through forgiveness, only through forbearance which is just agreeing to take less than owed for the time being in the simplest terms.

In a modification evaluation the net present value loan disposition  analysis of different scenarios, such as loan modification, short sale or foreclosure are measured in under a minute.

When considering a homeowner's mortgage, mortgage servicers and investors will compare the mortgage with several types of modifications, and without a modification such as short sale or foreclosure to see which option produces a higher NPV in dollar terms.

If the proposed modified scenario of the loan has a higher net present value NPV compared to the other alternatives such as short sale or foreclosure, then the loan modification is deemed NPV positive for a loan modification.

If the proposed modified scenario of the loan has a lower net present value NPV compared to the other alternatives such as short sale or foreclosure, then the loan modification is deemed NPV negative for a loan modification.

The MHA tool is free for homeowners, trusted advisors and counselors to use and you don't need a login but probably about 15 minutes to a few hours to get prepared for complex income situations, to run the inputs that only take 15 minutes, to then get the near instant output results of the NPV analysis as a positive or negative for the MHA HAMP program.

The range of acceptable debt to income ratio for the MHA HAMP program has now mirrored that of Fannie Mae and Freddie Mac's Standard Modification at 10% to 55% of gross monthly income for their housing payments by using the weekly Freddie Mac Primary Mortgage Market Survey Rate and by adding a 0.500% addition to rate due to a "risk premium."

MHA set up www.checkmynpv.com and recently enhanced it with the latest guidance as of February 1st, 2013 to include the new debt to income parameters.

Despite the guideline change, servicers can still use the housing to income ratio of the 1st mortgage, taxes, insurance and HOA dues to equal a range of 25% to 42% that was effective before February 1st, 2013.

Under the MHA HAMP program, servicers are required to offer the HAMP modification for an eligible mortgage if the NPV of the mortgage with the HAMP modification is greater than the mortgage as is.

The NPV evaluation result is one of many eligibility factors that must be considered in determining whether a homeowner qualifies for HAMP.

The website checkmynpv.com will allow a homeowner to estimate their loan's NPV for free under only MHA HAMP formulas, and that is where third party homeowner advocate groups like www.RESTReportMatters.com and www.LoanModHelpCenter.com help fill the gap in NPV analysis for proprietary loan mods and jumbo loans and rental properties and to verify servicer's Non-Approval Notices as being accurate or disputable for HAMP mods.

Servicers are allowed errors in the processing of loan modifications and inputs for NPV such as home values and income are incorrect at least 2 to 5 times out of each one hundred evaluations based on published audits such as this one starting on page 13 from SIGTARP  audit from June 18, 2012, titled "The Net Present Value Test's Impact on the Home Affordable Modification Program" :

"Within SIGTARP's judgmental sample of 149 applications that were reviewed for HAMP modifications between 2009 and early 2011 by 3 of the largest servicers -- Ocwen, Wells Fargo, and GMAC Mortgage -- SIGTARP found that the servicers could provide both accurate inputs and documentation for only 2 of the HAMP applications. SIGTARP found instances in which servicers failed to comply with HAMP guidelines on maintaining records on NPV inputs. For 19 HAMP applications, the servicer was not able to provide all of the inputs used to evaluate the homeowner for the NPV test. For another 19 HAMP applications, the servicer provided all inputs used to perform the NPV test, and provided documentation for all these inputs, but in some cases that documentation did not support the input used. For 109 applications, the servicers either could not provide documentation to support various inputs, or provided inaccurate documentation for various inputs. For the 149 denied HAMP applications, SIGTARP found that approximately 19% of the inputs either were entered incorrectly or could not be supported by the servicers' records. Because of the servicers' failure to maintain documentation of the NPV inputs, SIGTARP was unable to determine how many homeowners from its sample may have been wrongly denied a HAMP modification. One of the key inputs in SIGTARP's sample where SIGTARP found errors or lack of documentation was the borrower's gross income. Despite GAO's June 2010 report about servicer errors in calculating gross income, SIGTARP found servicer errors. The extent to which servicers used incorrect data increased the risk of an improper decision to an unacceptable level. When servicers use erroneous information in the NPV test, homeowners may be denied a HAMP modification and may ultimately lose their homes."

According to program presenters from the online seminar on the new release, the purpose of the free CheckMyNPV.com website is to "promote and facilitate dialogue between homeowners and servicers" which is a bit odd when you think of it because its such an esoteric subject but a good thing considering the SIGTARP review findings above.

A homeowner can get their information from their own documents such as mortgage statements, tax returns, income statements and other publicly available resources such as annualcreditreport.com , or from their servicer or from both or they can hire a third party to do this work for them by contacting the author which takes 15 minutes if all facts are prepared to evaluate, to as long 45 minutes or more depending on how prepared the homeowner is.

Some homeowners may have received a "Non-Approval Notice" if an NPV evaluation was completed and they can use the inputs from that sheet to run their own free analysis.

How it works is as follows:

After agreeing to terms of the use agreement for the www.checkmynpv.com site, the homeowner enters information regarding the investor and servicer of the loan.

The most challenging items to gather for homeowners are "data collection date ", which should be within 90 days of the servicer's evaluation.

Credit scores are used but note that if there are issues then the score can be disputed and not counted in the evaluation through a Letter of Explanation (LOE).

The middle of three scores from Experian, Equifax or Transunion is used or the higher of two, if only two come up.

If no score is used due to errors on the credit report, then zero is entered which reverts to the sate average fico score for borrowers seeking a loan modification.

Monthly income should be normalized and calculated by standard servicer income calculation methods to get gross monthly income before taxes or other deductions.

Property home values are subjective and based on automated home value models such as those found at www.eppraisal.com and the Chase home value finder or one of the www.RESTReportMatters.com best-in-class automated value models for a fee.

Total first mortgage debt is the total of the unpaid principal balance along with any past due payments and escrow advances that are added to the loan amount in a modification.

Remaining term on the mortgage is the number of months remaining on the mortgage from the data collection date.

The mortgage insurance coverage percent  is the percent percentage coverage at loan origination.

Other fields needed are if the mortgage is fixed or adjustable, and if any rates or payments are changing in the next 120 days from the data collection date.

Real estate tax bill and hazard bill and homeowner association fees and escrow shortages are needed as well as the months past due.

Imminent Default is defined as being less than 30 days behind and is also a question asked.

Before finally hitting the "calculate " button, the information must be printed or saved or emailed because they cannot be saved on the site.

The results page will have all of the inputs and the outputs that show your estimated negative or positive NPV.

The free help at the site is all about self service and the documents that are available at no charge are the Quick Start Guide, Frequently Asked Questions, Input Worksheet, Glossary of Terms, Sample HAMP Non-Approval Notices, Income worksheet and Total First Mortgage Debt Worksheet.

Here are the more comprehensive 45 inputs for a full blown professional and independent NPV analysis of HAMP and non-HAMP in-house, jumbo and rental property mods at this loansafe.org link.

Servicers use these findings as correspondence from the homeowner and if the same inputs exist and no other restrictions are present, the results can lead a reversal of a denial or support of a re-application.

Of course, they say they don't read what third parties send in, but what else would you expect from debt collectors?

Please note that as of now, software doesn't modify loans, it merely assists humans in modifying loans by doing the calculations and organizing information for human judgment.

If there are any issues with NPV that are not being addressed by your servicer, your non-profit counselor or HAMP Escalations, or you feel that you are not being evaluated or treated for a loan modification fairly, please email me at the loan mod help center at loansafe@loanmodhelpcenter.com for professional assistance that is unbiased, but at a nominal no up-front cost to the homeowner, along with your NPV inputs used that show you are negative or positive.

If you would like to talk to an expert, please call 877-663-4392 and request an appointment to see if a modification would benefit you by being NPV positive or negative based on your unique inputs.