Why Did My Loan Modification Fail?

There are many reasons why a loan modification might fail but one of the most common reasons is the NPV or net present value. Under the Obama Administration's home loan modification plan, individuals will need to apply for the modification and meet various elements of qualifying criteria. Once you do this, you and your lender can work towards the modification process.

What Is Net Present Value

Perhaps the most common situation in which a loan modification fails has to do with net present value. This occurs after you apply with your lender for the modification. Here is what you need to know about NPV.

• This is used to determine if a mortgage will be modified. It is a net present value test.
• The goal of the test is to compare the expected cash flow of the loan if the loan was modified and if the loan was kept the same. This looks at how the lender is affected.
• When the modified loan will produce a higher level of cash flow, the lender will restructure the loan for the homeowner.
• In situations where the modification would not produce a better cash flow from the borrower, the loan is likely to fail in this modification.

In order to better understand this, consider the situation. In most cases, this requirement of the home loan modification process allows for the lender to carefully consider the benefit to the investor to modify the loan. In other words, the modification will only go through if the lender will see an increase in the cash flow from the modification. Those loans that are modified are the loans that are most likely to be the best economic interest of the investors to make changes to. In many cases, there is a federal subsidy to the lender if the lender modifies the loan and this often results in the home loan's modification to be better for the investor.

Keep An Attorney On Hand

If you are facing foreclosure, and more importantly loan modification failure, speak with an attorney about the process and what this means to you. In many cases, the NPV decision is not going to change if you reapply for modification. However, your attorney can offer advice and guidance to help you to qualify for the home loan modification any time it is possible to do so. The attorney may also offer other methods to help you to avoid foreclosure.