One of the mortgage modification questions I expect to get a lot, but never do, is: How do you (or the banks) calculate a mortgage modification. The reader will notice a link in my Mortgage Modification 101 section to a page that shows how mods are calculated.
The short story is that there are two methods to a calculation – and subsequent negotiation. A federally guaranteed mortgage modification is usually calculated along HAMP, or Home Affordable Mortgage Plan guidelines. Non-federally guaranteed mortgages are calculated using a different, but similar formula. Many times, a bank in-house mortgage modification plan has better terms than HAMP.
The REST Report is an excellent tool in qualifying any given mortgage modification, or short sale, solution.
One mortgage modification company has replied to a similar question in the Market Watch section of the online Wall Street Journal. It’s worth reading because of it’s simplicity. The question centers on the ‘negative cash flow’ consideration in a mortgage modification negotiation.
The answer distinguishes between pre-modification cash flow and proposed modification cash flow. No one wants to negotiate a mortgage modification that is doomed to failure. It’s not fair to the distressed homeowner or the investor.
The REST Report calculates the NPV, or Net Present Value. This calculation is used by the investor to decide the most efficient solution to a distressed mortgage.
Beyond that, one paragraph gives a great overall concept. Of the five listed qualifications, the NPV, or Net Present Value calculation is the most nefarious and tricky. The NPV calculation is a proprietary calculation unique to every bank. Banks do not reveal their formula or resulting bottom line. The REST Report uses the same software the banks use to calculate NPV.
The information was provided by David Bartels of US Home Loan Advocates in Westlake Village, Calif.
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Originally posted 2010-03-03 08:38:52. Republished by Blog Post Promoter
