Feldman Law Center - Bob the Homeowner versus Net Present Value

Document Sample
Feldman Law Center - Bob the Homeowner versus Net Present Value Powered By Docstoc
					<div class="KonaBody">
                <p>Feldman Law Center - News by Feldman Law Center -- A
little known aspect of the Obama Administration’s “Making Home
Affordable” plan is the “Net Present Value” test which essen tially
determines whether a loan modification or a foreclosure and sale will
provide a better return for the investors behind the mortgage in
question. The calculation takes the proposed monthly payment in a <a
rel="nofollow" onclick="javascript:_gaq.push(['_trackPageview',
href="">home loan modification</a> and
multiplies it over the life of the loan (payment x 12 months x 30 years).
If that total comes in above what a sale and foreclosure would yield, the
calculation would favor a modification. If it falls short, the
calculation would lean toward foreclosure and sale.<br><br>Foreclosures
in many scenarios will favor the investors while a modification often
works to the advantage of the servicer. For the investor, a foreclosure
and subsequent sale may result in a loss of principle but money coming
back to the investor can be re-invested in other vehicles which can
provide yield and returns. The disadvantage for the servicers is that,
without monthly payments from the property, they lose the fees they were
able to charge the investor for handling the payments, billing, and
communication with the homeowner. A <a rel="nofollow"
href="" title="loan modification">loan
modification</a>, on the other hand, benefits the servicer by keeping the
payment stream, and the fees they can charge on it, alive. The
modification hurts the investor by forcing a mark to market valuation
which reflects the loss on the mortgage (also known as a haircut) due to
a lower interest rate and, if applicable, a reduction in principle.
 <br><br>The third party in the game is the homeowner (Bob) applying for
the loan modification. It’s likely that the homeowner has heard of
“Making Home Affordable― and is very aware of the 2% interest rates
that were part of the headlines generated by the plan. Naturally,
that’s the rate he wants. Unfortunately, getting Bob a 2% interest rate
is not in the interest of either the investor or the servicer of his
mortgage. For the investor, the lower the interest rate goes the bigger
the haircut. Memorializing it in a modification will turn a theoretical
haircut into an actual loss on the books. For the servicer, an interest
rate at that low level can push the NPV score to a point where the test
favors foreclosure over modification. If Bob’s property isn’t
considered a lost cause it’s extremely unlikely that he’s going to
see anything close to that 2% rate.      <!--INFOLINKS_OFF-->

                        <div style="width:300px;float:right;margin:12px
0px 12px 12px">
                   <script type="text/javascript">
            AB_pos          = "intext";
            AB_lang         = "en";
            AB_cat_channel = "3277900066, ";
            AB_path         = "";
          <script type="text/javascript">
            google_ad_channel = "7940249670, " + AB_cat_channel +
            google_language = "en";
            google_ad_region = 'test';
          <script type='text/javascript'
<br>One of the other variables is Bob’s commission based income. His
payments are going to be capped at 31% of his average monthly income,
which has dropped considerably. In fact, it’s dropped so much that even
by maxing his payment out at 31% of his monthly pay he falls below the
estimated foreclosure and sale score. Conditions dictate foreclosure
according to the net present value test.<br><br>The investor, seeing a
score that clearly calls for foreclosure takes a look at sales statistics
for Bob’s town and his neighborhood. Nothing is moving and foreclosure
backlogs are growing. Average bids at auctions are coming in at less than
60% of the loan amount. Less than 2% of foreclosed houses are selling at
auction. The estimate on what the property can realize in a foreclosure
and sale is way too high for current conditions. If the house sells, and
it’s a big if, it won’t be for anything near the price used in the
NPV calculation. The investor decides to pull back on the foreclosure due
to the regular hits he’s already taking in his portfolio and his
aversion to putting another property into the portfolio. The pullback on
the foreclosure doesn’t mean he’s going to allow for a modification,
however. There’s a haircut waiting with the modification as well. This
property is going to sit in limbo while things work themselves
out.<br><br>There won’t be any communication regarding this stalemate
between Bob, the servicer, or the lender. From Bob’s point of view the
servicer’s people aren’t responsive and aren’t calling him back.
The truth of the matter is that the servicer’s processors know as much
about Bob’s situation as Bob does; not much. The sides settle in to the
day to day of nothing happening which stretches to months.<br><br>The
commentary from homeowners that have tried to modify their mortgages
under the guidelines of Making Home Affordable runs along a thread very
similar to that of our theoretical Bob. While much of the delay can be
attributed to overload, staffing, and training issues at the lenders and
servicers, the stalemate between servicers and their investors is bogging
things down as well. The Safe Harbor Bill, passed by Congress in May, was
aimed directly at this standoff. Its main objective was to remove the
threat of lawsuits filed by investors when they felt that the servicers
were acting on their own best interests in approving loan modifications.
<br><br>While there may be a conflict of interest currently, neither side
wants to go to war over this issue. Despite the increased autonomy given
the servicers, it’s likely that they will still want to be on the same
page with investors to preserve long standing relationships that have
worked well over time. It therefore looks like limbo, status quo, and
homeowners waiting for a knock on the door will rule the day and the near
term.<br><br>Those homeowners seeking to avoid this quagmire would be
best served to hire legal representation familiar with the process to
either navigate the Making Home Affordable guidelines or to modify their
mortgages independently from the government program. With over 600
successful home <a rel="nofollow"
href="" title="loan modifications">loan
modifications</a> negotiated on behalf of their clients, The Feldman Law
Center is well suited to guide you through your loan modification. Call
them today at (949) 544 8224</p>                 <!--INFOLINKS_OFF-->

Shared By:
mr doen mr doen mr
About just a nice girl