Does My Lender Have To Modify My Loan If They Took Money From The Government?
If you are wondering if your lender has to modify your loan if they took government funds, the long and short answer is NO. At our offices in Ft. Myers, Naples, and Sarasota, Florida, this is one of the questions we get asked most. Unfortunately, there is no legislation today or government guideline which requires any servicer or lender to modify your loan or reduce principal. CNN recently did a story on"> this issue.
What the servicers are called to do is a Net Present Value (NPV) test. This NPV test will weigh the net present value of cash flows expected from the loan modification against the NPV of cash flow expected from no modification [i.e. foreclosure sale, insurance payouts, write-offs, etc]. For more details on this, go to http://www.treas.gov/press/releases/reports/modification_program_guidelines.pdf .
It’s extremely difficult to figure out how the servicer will calculate the NPV. For instance, among other things, the servicer is allowed to select the discount rate that will be used for the model NPV, and is allowed to select different discount rates for loans in portfolio and loans in investor pools. Needless to say, it’s nearly impossible to know how the calculation will be done, but the bottom line is they only have to do what is best for their bottom line. Basically, if they can make more by modifying your loan and keeping you in the home, they will. But if they can make more money by foreclosing you out and collecting their insurance, write-offs, etc, they will do that instead.
Since loan modifications are voluntary for the servicer, don’t expect that your lender/servicer will modify your loan if you can’t afford your current mortgage payment, even if they say they will; and please don’t make the mistake of believing ‘they don’t want another home, so surely they will modify,’ because they don’t have to and the numbers of actual loan modifications speak for themselves!
This blog is written by Shannon Houk, Esq.
