The secret NPV formula used to qualify for HAMP loan modifications that no one is allowed to know. Transparency at it’s finest.

You want to know why there are some 1.3 million trial loan modifications and only 168,000 and change permanent modifications, if you can even call them permanent?  Because no one knows whether they qualify for a HAMP loan modification before they head down that road.  No one.

If anyone tells you differently… they’re lying, or maybe they just don’t know any better.  The published guidelines can tell you if you aren’t qualified, but not if you are qualified.

And it’s all because of a formula that’s seems as closely guarded by the Treasury Department as our nation’s missile defense codes.  It’s a secret and we the people are not allowed to know.  I’m going to help in that regard, so read on… and if you’re even thinking about applying for a loan modification… ignore this article at your peril.

And away we go…

The Home Affordable Modification Program (HAMP) established by the Obama administration is a mess, and there’s no debating that point of view at this stage of the tragic game.  As one observer said: “The rhetoric is portrayed to the public is couched in the language of hope, responsibility and transparency — and only when one pieces together the details of the plan do the true effects become clear: the government will (probably) be mandating a significant transfer of wealth from private sector investors to program participants, all of whom are breaking their word, many of whom are likely criminals.”

At the core of the HAMP loan modification program is the “NPV Test” (NPV stands for “net present value“), which is the test that determines borrower eligibility for the program.

The NPV test’s stated purpose is to determine whether a lender would be better off financially by writing down and modifying the loan, or by taking no action and presumably foreclosing assuming the borrower’s default.  In mathematical parlance, it is the comparison of two multivariate formulas to see which is greater.  This “formula” aspect gives the public the illusion that the program has objective, numeric inputs and therefore doesn’t allow for random decision making by the banks or servicers.

The problem is that the Obama administration has written the test, and the banks decide who will take it and how it is to be graded… to homeowners, it’s a secret.


“The base NPV model was designed by an expert working group including the Department of the Treasury, the Federal Deposit Insurance Corp., the Federal Housing Finance Agency, Fannie Mae, and Freddie Mac.  It was designed specifically for the Home Affordable Modification Program. The base NPV model reflects aggregate data across many servicers, as well as the professional judgment of the working group.”

The HAMP plan requires that a borrower be given a new, discounted, “MODIFIED” loan, provided that certain tests are met.  HOWEVER, the inputs to determine whether those tests are met are not available to the public.  No one, with the exception of the government agencies involved, is supposed to know the actual inputs of the HAMP NPV test that will determine who is required to give a delinquent homeowner a modified loan.

Let’s look at the initial “Summary of Guidelines” provided on March 4th of 2009, where it states:

“Parameters of the NPV tests are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation assumptions foreclosure costs and timelines, and borrower cure and re-default rate assumptions.”

The HAMP guidelines were also released on March 4th, but NO ACTUAL NUMBERS (despite what was promised that would be “spelled out” in the Summary) were provided:

“Required parameters for the NPV Test will be published separately.” (Page 5)

An addendum was also provided, titled the “Net Present Value Model Parameters” — but the problem is that only one actual number was provided in these “parameters” (the discount rate) and that numeric input may be modified by a lender or servicer.  But, under the “Standard NPV Model” it states:

“Complete details on components outlined below are forthcoming.” (Page 16)

The Cure and Re-default Rates will come from: “A default equation with parameters based on GSE analytics, and Treasury will update these tables periodically based on incoming data.” (Page 16)

The Property Value: “… will be determined in accordance with the Guidelines” (Page 16)

Incentive Payments:

“… to be determined in accordance with the Guidelines”  (Page 17)

Other Parameters:

“The remaining parameters will come from data sets held or produced by the Federal Housing Finance Agency: home price forecast, valuation of house price depreciation reserve, foreclosure timelines, and foreclosure costs and REO stigma.” (Page 17)

However, if you go to the FHFA website and search for any of those “parameters,” you won’t find a single one on their Website at least.. None.  Not a one.

That’s right… the inputs for the formula that determines whether a private bank will be required to write down billions of dollars in mortgages is entirely unavailable for public viewing.  However, this appalling lack of transparency is only the beginning.  As stated in the HAMP “Base Net Present Value (NPV) Model Specifications” document, when discussing assumptions detailing home prices:

“A servicer must use the home price projection provided in the base NPV model.  A servicer does not have discretion to substitute a different projection.”  (Page 5)

The data would have to be considered even more questionable, as the “home price projection for the program has been made available by FHFA exclusively for this program…. the projection is not based on the FHFA House Price Index.”  In other words, this data is a special set, not based on any official data, but servicers are required to use it.  The same logic is applied to the “REO ‘Stigma'” (houses foreclosed upon sell for less than similar non-foreclosed homes):

“REO stigma values vary by state and home price, servicers are not permitted to change the REO assumptions in the base NPV model.” (Page 5)

Assistant Treasury Secretary, Michael Barr has said that:

“Even if HAMP is a total success, we should still expect millions of foreclosures” as administration and industry efforts continue to stabilize a crisis-stricken housing sector.  He said a strong housing market was “crucial” to our sustained economic recovery and described the slump in prices and demand in the housing sector as being “at the center of our financial crisis and economic downturn.”

He noted: “Much more remains to be done and we will continue to work with other agencies, regulators and the private sector to reach as many families as possible,” Barr said.

Look, these guys are playing hide the mousie, simple as that.  And that’s being kind… like giving them the benefit of whatever doubt could possibly exist… maybe if you’re 8 years old.

Diane Thompson, one of my personal heroes, and a lawyer at the National Consumer Law Center has tried just about everything to get the formula released, even testifying to congress on several occasions.

“There are assumptions built into the (HAMP NPV qualification) model, and they may not be the right ones,” said Diane Thompson of the National Consumer Law Center.  “Someone needs to be able to review it.”  (Read more here.)

(Ya’ think?  Probably a good idea, but what the heck do I know?)

But to-date no one has or can.  Well, that’s not entirely true.  I have, and I can.  And I also know what homeowners can do to find out whether they qualify for a HAMP loan modification… or why they don’t… before they apply and therefore avoid heading down a road that, without running the report, is little more than guesswork.

That’s why we have something like 1.3 million trial loan modifications and only something like 170,000 permanent modifications, don’t you get it?  No one knows who qualifies and who doesn’t… for sure.

If you find you don’t qualify for HAMP, then you won’t have to go down a path that requires you to make months of trial payments only to find your home in foreclosure anyway.  At least you’ll know where you stand.Someone who understands the program’s qualifications can often tell you if you DON’T qualify for HAMP, but they can never know for sure if you do.  No one.  It’s simply impossible without knowing the NPV formula, and the formula is entirely too complicated for guesswork to have even a remote shot at coming close.

I have the answer… the only real answer… for the moment anyway.

Beginning this next week, homeowners will be able to contact me at Mandelman Matters to get access to the software platform that generates a report showing whether they qualify for a HAMP loan modification and the terms of that modification.  It will incorporate a version of the secret NPV test that, while not exact, is within HAMP guidelines.   It will also qualify a homeowner for other government programs as well, like the HAFA short sale program many are now pushing, for example.  It will answer the question I’ve heard homeowners ask every day for over a year now: What the heck is going on with my bank and why won’t they modify my loan, or tell me why they haven’t modified my loan?

Does that guarantee that a bank will do what they’re supposed to do?  Don’t be ridiculous.   Obama gave the banks trillions and not only don’t they do everything he tells them to do, at least three of them barely take his calls.  Okay, I don’t know that, but trains from NYC to DC don’t stop running in the fog nowadays, do they?

Having the report helps homeowners a whole lot because it’s generated using a version of the same software platform being used by major banks and servicers to determine HAMP qualification, and it does mean that if a homeowner doesn’t get the modification the report shows he or she to be qualified for, then that homeowner would have a way to push back.  It levels the playing field and clearly the banks don’t want anyone to have it.

I don’t think I’ll publish any further details at this time, but there will be lots coming in just a few days.  I’m only halfway kidding when I say… if I disappear all of a sudden, someone please say something about it… please?  I’ll have the details on my laptop and on flash drives hidden all over the place, so find one and expose these government goons should I find myself in some Eastern Block detention facility, not listed in your Fodor’s Guide, unable to place a call to my attorney.

So, with the report you’ll know if you qualify for a HAMP loan modification and what the terms of that modification would look like if you chose to pursue it.  You’ll also know if you qualify for a HAFA Short Sale, another government program that allows homeowners to avoid foreclosure by selling the house for less than is owed.  You’ll know a lot… and certainly a whole lot more than you can know without the report.  You’ll know what the bank knows, but that doesn’t mean you’ll turn into a major dick or anything.

And should you find that the report says you don’t qualify for a HAMP loan modification, that DOES NOT MEAN that you can’t get your loan modified, it just means that you won’t get it modified under the government’s HAMP program.  However, many or even most of the banks and mortgage servicers have internal loan modification programs and you may qualify for one of those.

If your report shows you qualify for HAMP, you can send it in to your lender or servicer along with the other required paperwork and you should have no trouble getting your loan modified in line with what the report says.  The new Website I’m launching will provide you with everything you could possibly want to know about handling the loan modification process yourself… without having to hire anyone to help.  Of course, if you have problems or simply don’t feel as if you can tackle it alone, you can always take the report to an attorney and as he or she to help.

And by the way… if you find you don’t qualify for HAMP, then you won’t have to go down a path that requires you to make months of trial payments only to find your home in foreclosure anyway.  At least you’ll know where you stand.

Are you feeling me here?  Getting the report is all upside, as far as I can see.  I cannot think of a reason not to run one specific to your situation before you even consider anything else.

If you’re a homeowner considering a loan modification or a short sale, email me at Mandelman Matters: and get off the guessing-go-round related to loan modifications under the government’s HAMP program.  Know what the banks know before you decide which path is the right one for you and your family.  Seriously… I’m not kidding when I say that I wouldn’t even think about starting without it.

Nevada Residents: You, along with the residents of various other states, have a state run mandatory mediation program that allows you to request that a mediator be appointed to review your situation before your lender is permitted to foreclose on your property.  Don’t go into such a mediation unarmed… get your report and hand it to your mediator.  Without it, there’s very little to mediate.

IMPORTANT NOTE: As most of my readers know, Mandelman Matters has never sold advertising or received revenue from anything having anything to do with loan modifications, short sales, mortgages, appraisals, or anything in the real estate industry.  However, in the case of this report, I’ve decided that I will officially endorse it without reservation, and that a company in which I’m financially involved will receive a small percentage of the fees charged each time a report is run. If you have further questions regarding this issue, feel free to contact me directly at

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