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Until recently, borrowers weren't privy to the data used to perform the Home Affordable Modification Program's, or HAMP's, "net present value" test. But as of Feb. 1, loan servicers are required to send letters disclosing up to 33 data points to some borrowers who were rejected for HAMP loan modifications. Not all loans are covered by this requirement, which is part of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, so not all borrowers will receive letters.
HAMP Test Required
The data points focus on the borrower's financial situation, home, existing loan and proposed modification, according to Tom Goyda, a spokesman for Wells Fargo in St. Louis. Borrowers who believe they have found mistakes in the data may file appeals with their servicers. Final decisions are up to the servicers.
"If they think there are any errors in terms of the inputs used, they have 30 days during which they can provide, in writing, what their evidence is to support what they believe the correct value should be," Goyda says.
HAMP's net present value, or NPV, test measures whether a loan modification makes financial sense for the lender. If so, the servicer must offer the borrower a trial modification. If a modification isn't in the lender's financial interest, and the borrower hasn't made the payments, the servicer may foreclose on the loan.
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HAMP Test Website
Borrowers who want to see the inputs in action will soon be able to run their own practice HAMP tests on a website being developed by the U.S. Treasury. The website is expected to be ready in late spring and will include definitions of terms and icons to explain the inputs, according to Treasury spokeswoman Andrea Risotto. The system will have security features, but it will be open to anyone who wants to use it.
The chief benefit should be greater transparency in the HAMP process. Borrowers will be able to evaluate whether their situation might pass the HAMP test and see how changes in the data could affect the results, Risotto says. For example, a borrower who believes the loan servicer's opinion of the home's value was incorrect can see whether a more accurate valuation, perhaps based on an appraisal obtained by the borrower, would affect the outcome of the test.
The website will perform only HAMP calculations, not tests based on servicers' proprietary non-HAMP loan modification models.
Inputs Determine Outcome
Besides the disclosed inputs, the results of a HAMP test depend on other factors controlled by the servicer, such as the estimated cost of the loan modification, the perceived likelihood that the borrower will default on the loan and cost of a foreclosure. HAMP's guidebook for servicers lists 51 recommended inputs for the NPV test.
The design of the HAMP test is critical, a point that was well-explained in a Congressional Oversight Panel's December 2010 review of federal foreclosure prevention programs.
"If the NPV model is calibrated correctly," the report states, "it will get the correct homeowners into HAMP to prevent avoidable foreclosures. However, an incorrect calibration could either act as a means to delay inevitable foreclosures or grant subsidies to those who would otherwise cure (a loan default) and therefore do not need the extra help."
Borrowers won't be able to test the model's accuracy, and they won't be able to test their servicers' assumptions. But the new data should clear up some of the mystery about what goes into the HAMP test.