Why were you turned down for a HAMP modification?
That's the question that the U.S. Treasury aims to answer with an online calculator that was posted yesterday. It also can help answer the question: Will I be approved for a HAMP mod?
The calculator can be found at the dreadful URL CheckMyNPV.com. For search engine friendliness, I'll link to as the government's HAMP calculator. That should help it rank higher in searches. My public service for the month.
The site's URL and content are terrible from a search engine optimization standpoint, although the URL is descriptive in an übergeeky way. The calculator lets homeowners check the net present value of a mortgage modification. Thus the name Check My NPV.
Net present value, or NPV, is a way of making financial decisions. You have done an NPV test if you weighed whether to repair your car and drive it for another year, or sell it now and buy a new one.
When you apply for a mortgage modification, the lender doesn't care whether you "deserve" a mod or whether a mod makes financial sense for you. The lender wants to know which course is less unprofitable for the lender: modifying the loan under the Home Affordable Modification Program and accepting smaller monthly payments, or rejecting the loan-mod request and possibly sending you into foreclosure or short sale.
The question is even more complicated than that. The lender is playing the odds when it makes the loan mod decision. The net present value test doesn't measure whether you, individually, are likely to default if you don't get a loan mod. Basically, the test looks at what would happen if 100 homeowners were in the exact same financial position as you. If all 100 homeowners were denied loan mods, some would go into foreclosure or short sale and some wouldn't. The net present value test considers which action would lose less money in the long run: giving all 100 owners loan mods, or denying all 100 owners loan mods. That's oversimplifying things, but it's the gist.
The lenders' NPV test was opaque for two years, but became a little more transparent -- let's say translucent -- starting Feb. 1, when lenders began to be required to disclose some of the data points and assumptions they made when they ran the NPV test.
The most important assumption is the estimated value of home. The more valuable your home compared to the outstanding mortgage balance, the more likely it is that the lender will reject your loan mod request and risk sending you into foreclosure.
The HAMP calculator at Check My NPV will let you enter different values (such as you're home's estimated foreclosure sale price) to see if alternate assumptions will result in a favorable loan-mod decision.