Financial reform and your mortgage

NPVs, GSEs and Chinese drywall
NPVs, GSEs and Chinese drywall

When you apply for a mortgage modification, the lender applies a "net present value test" to decide whether to grant the modification. The NPV test makes some guesses about the likelihood that you'll default, how much the home is worth now and how much it will be worth a year from now, how much it would cost to foreclose, and what price the house would sell for after a foreclosure.

Most of the numbers in the NPV test are secret: The lender doesn't have to disclose the odds that you would redefault, for example.

The Dodd-Frank legislation requires lenders to disclose the assumptions used in the NPV test whenever they reject an application for a mortgage modification. But it doesn't provide a way to appeal modification rejections.

Regarding the government-sponsored enterprises, or GSEs, the legislation says the "hybrid public-private status of Fannie Mae and Freddie Mac is untenable" and says something should be done. But it doesn't say what.

Finally, the legislation orders the feds to "conduct a study of the effect on residential mortgage loan foreclosures of ... drywall that was imported from China" from 2004 to 2007.


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