By Mandelman
What if you could know the answer to that question? Well, if your loan is in a securitized REMIC trust now you can… read on.
You couldn’t keep up on your mortgage payments. Maybe they went up, maybe your income went down, or maybe it was both things happening at once, but whatever the cause, the point is that you fell behind… or knew you would have eventually… so you applied for a loan modification.
Now you’re told that the decision to modify your loan or foreclose on your home depends on whether the investor that owns your loan will come out ahead financially by modifying it… or foreclosing and selling it to someone else.
That’s what the NPV test is supposed to determine, whether the investor who put up the money for your loan will make more money by foreclosing and re-selling, or whether it makes more sense financially to modify your loan so you can continue to make the payments. Sure, modifying your loan will mean you’ll pay less than you were supposed to pay, in most cases, but if the amount you’ll pay with a modified loan is more than the investor would get by re-selling your home, wouldn’t it be better for the investor to modify? Of course it would.
Isn’t that what this foreclosure crisis is all about… whether it’s in the best interests of the investor to foreclose or modify the loan? When the investor comes out ahead by modifying, the servicer is supposed to modify. And when the opposite is true, they should foreclose. Right? Of course, that’s right.
And I guarantee you that’s what most Americans believe is happening… servicers are foreclosing when it’s in the best interests of the investors, and they’re modifying the loan when that’s not the case.
But the NPV test is only a forecast of whether the investor will make more money modifying than foreclosing… it’s a formula that provides a “best guess” at how things will work out financially for the investor in the future if your loan is modified today. It doesn’t actually show what will happen in the future because no one can know what the future will bring. All we can do is create a formula that provides a forecast… an estimate… a best guess, if you will… and that’s what …read more