How To Calculate the NVP of a Foreclosure

NPV is net present value, a calculation used as an indicator of profitability. In investment decisions NPV can help investors decide which among the different choices is more profitable to the company. This is also true for the mortgage industry. A property's present value is calculated to let the lender know how much it will earn in a foreclosure, or if the home owner should be given a loan modification.

Calculating NPV

Unlike NPV in the corporate world, the NPV in the mortgage industry has a rather esoteric calculation that leaves home owners baffled about the entire process. The formula is rather complicated, with rooms for adjustments that lenders can choose to do. These adjustments can be based on some factors that only the lenders know about. It involves the homeowner's income, the assets, the appraised value of the property, and the home price appreciation forecast, among others. The banks or lenders use the FDIC NPV Worksheet in calculating for the value. The calculation would also involve how much money will the property generate in a sale.

Implication of NPV

The NPV is not about what is best for the home owner. It is about how much profit the mortgage company will make in the end. If a foreclosure gives the lender more money, then, the owner will be advised that the home will go into foreclosure. But if there is more money to make in loan modification, the homeowner will be given one.

Getting Legal Help

Consult with a lawyer who is an expert in real property concerning your problem. You do not need to agree to what the mortgage company says about your property. Ask your lawyer how the lender has come up with the NPV calculation and if the factors used in the computation are valid and realistic.