Fannie Mae and Freddie Mac own a lot of mortgages and they use loan servicers such as Bank of America, Wells Fargo, and Chase to service those loans. Servicers of Fannie Mae and Freddie Mac loans are required to review borrowers for HAMP loan modification applications.
The basic eligibility criteria for a HAMP loan modification is that you mortgage payment must exceed 31% of your gross monthly income. If you earn $10,000 a month and your mortgage payment is $2,500, you are ineligible for the program. However, if your mortgage payment is $4,000, the HAMP guidelines would seek to lower your monthly mortgage payment to $3,100 by lowering the interest rate on the loan to as low as 2%, increasing the term of the loan to up to 40 years, and in rare cases, principal reduction.
A lot of borrowers whose mortgage payment exceeds 31% of their gross income find that their loan modification application gets denied even though they have the income necessary to support the mortgage with a reduced payment.
If you apply for HAMP, you must either receive a trial loan modification or be issued a denial letter. If you received a denial letter, it must explain why you were denied. It will either be because your do not meet the program’s requirements, you failed to supply documentation, or the net present value (NPV) of the loan modification was negative.
The NPV test is unpublished and considered a “secret formula.” However, you are permitted to request the NPV input values to ensure that they are correct. In a nutshell, the NPV test compares the income the lender would receive by giving the borrower a loan modification to the income the lender would receive if the property is foreclosed. If the lender would receive more money through a foreclosure than through a loan modification, the lender can deny the loan modification application on this basis.
If you have received a HAMP denial letter, you have 30 days from the date of the letter to request the date the NPV calculation was completed and you can request the input values to make sure they are accurate. If any values are incorrect or inaccurate, you can request a new test be completed within 30 days. Items such as your gross income or zip code can significantly impact the NPV calculation.
If you have received a HAMP denial letter for a home located in Pennsylvania, please contact me at (610) 417-6345. We’ll be happy to offer a free consultation and discuss your options.
Zachary Zawarski, Esq.