The Unofficial HAMP Loan Modification Calculator v2.7-beta

Since 2007 The Arm Disarm Story

Web sites for official information include: makinghomeaffordable.gov (Data, Progress Reports and Approval/Disapproval Stats by Servicing Bank) -- Fannie Mae (loan workout programs) -- Freddie Mac -- sigtarp.gov Keep Your Home CA

Cheating? Fraud? Office of Mortgage Settlement Oversight -- preventLoanScams.org

Application Deadline for HAMP now Dec 31, 2015


Inputs

Unpaid Loan Balance, i.e. what is owed on the home
Max Eligibility: typically $729750
Market Value, i.e. home value if sold in todays marketplace
Procedure to Calculate Loan Modification. Choose "Tier 1" or "Tier 2". Borrowers who fail HAMP Tier 1 can be considered for HAMP Tier 2.
Calculate Principal Reduction. Uncheck this box to calculate without PR.
In opposition to principal reduction, on July 31, 2012 Fannie Mae/Freddie Mac's acting director released a statement, research paper, and technical appendix.
Calculate Lender's Variation. MHA Handbook v3.3(sect 6.4.3) and v4.0(6.4.4) allows lenders to lengthen loan before reducing rates whenever the forgiven principal exceeds 5% of the unpaid balance. Lengthening first seems to be better for the lender than for the borrower as it may cause the loan to lengthen to 40 years but keep an initial interest rate higher than 2%. We are not certain how many banks or which banks use this variation of the calculation. Check or uncheck this box and click BEGIN again to see the effect.
Borrowers combined Monthly Gross Income
include all work, retirement, investment or other income, before deductions
Approved Misc Monthly Housing Expense
include property taxes, hazard and flood Insurance, HOA fees
Months Remaining on Loan
Current Interest Rate for Loan in %
(for ARMs use the reset rate instead of the low fixed/teaser rate)
Freddie Mac 30YR FRM Avg rate in %
Please re-enter by hand from the table below:

Freddie Mac copyrighted loan market data provided "as is", under a public syndication policy of Freddie Mac and with no warranty of any kind. See how to add Freddie Mac data to your website

Risk Premium for NPV Calculation. Will not affect length, rate, balloon or principal reduction in calculated loan, only sets up discounting for Simplified NPV. Higher setting leads to lower NPV value and makes foreclosure more attractive for the creditor.

Privacy note: No data is transferred. Calculation occurs within your web browser. Demonstration Video - 4 Examples (15 min)


Outputs

Target total monthly payment level (loan + allowed misc expense)
(Treasury's policy target; % of income)
$ =
$ (loan) + $ (misc)
Principal Reduction
$
New Unpaid Balance
(new LTV: %)
$
Modified Interest Rate (first 5 years) %
Modified Monthly Loan Payment (first 5 years) $
Length of Modified Loan (months)
Months for which rate changes will occur
New Rates beginning on these months (%)
New Monthly Payments ($) beginning on these months
Balloon payment at end of loan (suggested max: $) $
Total of Loan Payments $
Simplified Net Present Value
without Subsidies or Uncertainty
**Warning: This Simplified NPV is NOT the official HAMP NPV
$
Rate used for evaluating Simplified NPV
equals PMMS Rate + Risk Premium
%

These results are provided "as-is" and with no warranty of any kind. Procedures and calculations are subject to change and should not be relied upon for any particular case. Actual results may vary. If you need advice specific to your case, please consult a legal or financial professional.


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Sensitivity Analysis

This tool does multiple calculations, then graphs the results.
  1. Up top, run a calculation to get a "base" result
  2. Here, tell it what to vary and what to monitor
  3. Repeat #2 until you are satisfied you understand what is happening.
Requires a modern web browser to work properly (Firefox 3.5+, Safari 4+, Chrome 8.0+, IE 9+)
On Smartphones/Tablets show only single outputs, on "Main 7" it may hang.

Vary Rules Include "bad" mods

Vary From To Show

colors for Tier 1 Calculations: No Principal Reduction, With Principal Reduction, With PR + Lender's Variation
colors for Tier 2 Calculations: No Principal Reduction, With Principal Reduction








Graphs utilize jqPlot, free plotting software from Chris Leonello, distributed under the GPLv2 License


Steps for HAMP calculations

These steps explain what the Unofficial HAMP Calculator is supposed to do. When you push the "click to calculate" button, these steps guide the animation of the intermediate results listed as Outputs. The intermediate calculations continue, using each step in order, until the monthly payment reaches the affordability goal. The first version of the waterfall procedure had fewer steps -- but these steps have been kept in later versions -- see US Treasury Supplemental Directive 09-01: Introduction of the Home Affordable Modification Program, pages 8-10. Later rule changes added the steps for principal reduction and lender's variation, and then HAMP Tier 2. See The MHA Handbook v3.3 and The MHA Handbook v4.0
  1. Capitalize accrued interest and certain costs. To do this, make sure the unpaid balance includes all unpaid interest and other fees that can be assessed against this loan. Do not include late fees in the unpaid balance.
  2. Reduce principal, if principal reduction is offered. This is a new step, part of the "principal reduction alternative".
  3. Convert ARM loans to fixed rate, fully amortizing loans. Reduce the interest rate from the current rate by 0.125% drops to as low as 2.0% to try to reach the target monthly payment level. Do not round the initial rate to fit a 0.125% grid. If the resulting rate is below the Freddie Mac 30 YR rate then bump up the interest rate 1.0%/year after year 5 until that rate is reached. If the resulting rate is higher than the 30YR then keep the rate steady where it is.
  4. If necessary, extend the term and recalculate as up to a 480 month (40 year) loan
  5. As if things weren't complicated or tedious enough already, if the principal was reduced by 5% or more the lender is allowed to reverse the order of the reduce rate and term extension steps. The lender can increase the time to pay to 40 years BEFORE reducing the rate.
  6. If necessary, provide for non interest-bearing principal forebearance to achieve the target monthly mortgage payment ratio, i.e. a non-interest bearing balloon payment. Under the MHA 4.0 documentation, the suggested maximum limit for principal forebearance is the maximum of 30% of the unpaid balance or the amount needed to achieve 100% LTV (i.e. unpaid balance - market value) and is reduced by any initial principal reduction.
  7. Finally: Try Tier 2, a new formula -- if the Tier 1 modification fails

How is Imminent Default determined?

That is a good question, since borrowers "must" be in default or imminent default to be eligible for a HAMP modification. Whether this is strictly true or not is unclear. The loan modification examples gathered from public data shows mixed results.

Important Note: Borrowers who are good payers and current on their loan obligation may be eligible for a HARP refi or other programs that are beyond the scope of this website. Some of these other programs may be better than HAMP, and may be designed for borrowers who want to reduce payments but are not in imminent default.

Imminent Default Forms and Procedures

What is HAMP Tier 1 and Tier 2?

Tier 1 and Tier 2 are both types of HAMP modifications. Tier 2 involves a newer calculation for those who fail Tier 1, and was rolled out in 2012. Both Tier 1 and Tier 2 are still in use. Borrowers who do not qualify for Tier 1, or who defaulted on Tier 1, are evaluated for Tier 2 which is a similar but different formula. Tier 2 operates as follows: the interest rate is the FRM 30 YR AVG rate for the entire loan, the loan is lengthened to 40 years, and there would be either a principal forgiveness or a balloon. There are fewer adjustable or optional components to the formula, no "search", no dozens of small steps. The mathematics is less sensitive to income. The payments may also be a higher percentage of income in Tier 2. A Tier 2 modification is not indicated if the modified monthly payment does not fit in the target monthly payment window (this is tested here in the unofficial calculator) or if it is not at least 10% lower than the current loan payment (this is currently untested in the unofficial calculator). The NPV test can still veto a Tier 2 modification.

NEW for HAMP Tier 2 starting Feb 2013 The range of allowable monthly payments for HAMP Tier 2 is potentially expanded beginning Feb 1 2013. As explained in Supplemental Directive 1209, the new monthly payment must be between 10% and 55% of borrowers gross income or a range specified by the loan servicer provided that the allowable percentage range fits between the old/new percentage ranges. Previously, the rules in MHA Handbook 4.0, section 6.1, p.90 required checking the new monthly payment to make certain it is between 25% and 42% of borrowers gross income. Currently, the unofficial calculator here is still using the 25-42% range to provide alerts when HAMP Tier 2 is calculated. Note that the new rule affects the check of HAMP Tier 2 eligibility after the proposed new payment is calculated, but does not otherwise change the formulas or procedures for calculating the new payment.

Rental properties are eligible for HAMP Tier 2 (not Tier 1) One description of the procedures mentions first finding the net profit from the rental property. If there are net profits they are added to the income of the landlord applying for HAMP 2, and if there are net losses they are added to the monthly expenses of the landlord applying for HAMP 2. This leaves some questions about what goes in the other blanks and also what happens when there are multiple rental properties. These kinds of cases are not currently within the capabilities of the unofficial calculator

In some cases, do HAMP's rates and payments increase after 5 years?

Yes, and the calculator tries to calculate this effect. It is a step in the HAMP directive and it has been programmed into the unofficial calculator. Page 9 "Step 2" of Directive 09-01 requires rates that are sufficiently low to rise after 5 years. The rate, of course, affects the payment. Rates rise when they are below the Freddie Mac 30 YR rate that was in effect when the loan modification agreement was prepared. Thats why the current Freddie Mac 30 YR rate is shown and then asked for in the Inputs section of the unofficial calculator.

NPV or Net Present Value -- A final step that can veto the loan mod

Although in some cases the modifications suggested by the Treasury program descriptions look quite good for the distressed homeowners, they may also be bad for the lender. Modifications do not have to be made if computer modelling shows the lender could realize more money through foreclosure or foreclosure alternatives like cash-for-keys.

The calculation lenders make to evaluate the value of the modified loan is called an "NPV test" or Net Present Value, a method of converting the future values -- the promises a homeowner makes in the modified loan -- into present value, or money now, by applying a discount factor. You can think of this discount factor as an exchange rate between money in the future and money now, where money in the future given a lower and lower value as one converts from further into the future into the present. A homeowner who wants to keep the home through a loan modification generally would want/hope the NPV of the modified loan is more than the amount the lender could realize in money now through forcing a sale of the home.

At this time, an independent "unofficial" approach to the full HAMP NPV model is beyond the scope of this website. There are several reasons for this. One input, the risk premium, is set by the bank's investors -- varying depending on who owns the loan. Higher amounts of risk premium drives the NPV calculation lower because future values become worth lower amounts of present value. Another reason is the uncertainty modelling, which tries to guess the probability a borrower will pay back their modified loan or not and also estimates what happens in the case of "not" to produce a blended NPV. This requires knowing credit score and how credit score, the local real estate market forecast, and other factors matter. Finally there are all the various kinds of subsidies which are in place to help convince the banks to grant a loan modification. Subsidies vary and require more inputs, inputs that the average curious citizen would not know. The official HAMP NPV model includes the effect of these subsidies in their calculations too.

However, one can calculate a Simplified NPV, omitting the effects of the bank's risk premium (note: some documents claim Fannie/Freddie use a zero - 0 - for this input anyway; banks requiring a high risk premium would be discounting more, calculating lower NPVs for the same loan), omit the uncertainty and assume the borrower will pay back the modified loan (this may tend to make the simplified NPV calculate higher then the official model), and omit the subsidies (this may tend to make the simplified NPV calculate lower than the official model). There is no reason to assume that the "mays" cancel out. The simplified NPV is provided primarily for educational purposes. As time allows, we'll add a way to see the effect of varying the risk premium. The uncertainty and subsidy portions depend on variables we don't have, and are too complex and subject to change to make worthwhile future projects.

To check the official HAMP NPV Model, you can use a free calculator recently released by the government. Of course it needs lots of input, but it only produces a pass/fail type of indication.

Treasury and HUD have announced a public calculator for the HAMP NPV Model at https://CheckMyNPV.com.

Also, SIGTARP (Special Inspector General for Troubled Asset Relief Programs) has issued a public document entitled "The Net Present Value Test's Impact On The Home Affordable Modification Program". The "Conclusions"/"risk premium" subsection on p.16-17 has some interesting details about how some of the major HAMP servicers adjusted a variable related to risk in the NPV test (including BofA, Wells Fargo, JPMorgan Chase, Fannie/Freddie) and its effect on eligibility... Whether you support or are opposed to the idea of helping distressed homeowners, it makes for some interesting reading.

Loan Mod Hell

It has been reported that some banks repeated asked applicants for the same information over and over again. There have also been reports of dual tracking of foreclosures alongside modifications, so that when the modification is finally denied the foreclosure will follow shortly thereafter. One hopes these practices will be curtailed (there may be a law in California going into effect Jan 2013). Search for "loan mod hell" or "dual tracking" at google or youTube for more information.

Pro Publica, which describes itself as an "independent, non-profit newsroom" has a series on The Foreclosure Crisis which makes excellent reading for those needing a crash course on "loan mod hell" and how some banks may have allegedly abused their role in federal assistance programs like HAMP.

And why are there all these problems with information? Besides inefficient bureaucracy, and the possibiity of a business advantage to losing the paperwork, one could blame the complexity. There are like 98 reasons why the HAMP NPV Model may refuse to run, and these are listed for the curious in a public document.

Now how does a present value model from mathematical economics, which is just an exponentially weighted sum, "refuse" or "fail" to do something? When it is in fact not just a bit of math to protect the banks from potentially ill-advised loan mods but a complex program running on a computer programmed by humans -- then it can refuse or fail to do something. Could someone perhaps have simplified things a bit so that there are no longer 98 different failure codes?

While some of the codes are no longer used and others are just checking that inputs are valid or previous steps completed correctly, there are codes that seem to contradict policies stated elsewhere:

Examples of HAMP NPV 5.02 failure codes from pages 35-38 of Making Home Affordable Base NPV Model Documentation v5.02 (April 2013)
Failure Code Description
Code 'm' "Ineligible for HAMP modification – Loans that are 0 or 1 month past due but not in imminent default"
Code 'n' "Ineligible for Tier2 Modification – Non-owner-occupied modifications that are less than 2 months past due are not eligible".

Of course, the law, then regulations, then regulators, should decide these things rather than a computer program. I seem to recall the Federal Trade Commission, the FDIC, and other agencies warning people not to stop making their mortgage payments.... emphasizing that homes can be lost to foreclosure and how owners do not need to be in actual default -- only "imminent" default -- to get a loan modification. Perhaps these codes represent outdated documentation... that's about the nicest thing one can assume in this situation. Or perhaps they are for people who called the hotline and said "I stopped making payments and missed two mortgage payments, and kept the money in my mattress. Can I get a loan modification now?" I imagine that should be a "no", since someone who has the money to pay their bills yet refuses to do so is not actually insolvent. Yet I wonder if these codes can provide a rational explanation of how some borrowers claim they were told not to make a payment in order to get the modification, skipped a payment, and wound up losing their home in foreclosure.

Lawsuits over HAMP are a topic I think I'll leave to the lawyers. For those who are still curious, go to Google Scholar, and search for appeals cases involving "loan modification" or "HAMP". A legal case will often have a "plain English" description of the dispute. These can provide examples of alleged bank misbehavior as well as a look at how the courts handled the complaints. Reading can be dangerous. If you need legal or financial advice, get it from a professional or qualified non-profit in your local area.

After the Loan Modification...

According to SIGTARP, 25% (1 in 4) of loan modificatins redefault, i.e. fail to make the payments. Redefaults vary across localities.

See:July 2013 SIGTARP Report entitled "Rising Redefaults of HAMP Mortgage Modifications Hurt Homeowners, Communities, and Taxpayers"


Try: Loan Mod Examples

The historical database is back! We have tables and tables of thousands of historical loan modifications where data has been publically disclosed by the US Treasury.

For those who tried "Loan Mod Spy", this is different. Loan Mod Spy or similar search/graph page may return in the coming weeks.

To try it out click Loan Mod Examples

Here is an interesting list, with obvious data entry mistakes bubbling to the top of the list: Top 100 Loan Modifications By Change in Monthly Payment


Unofficial HAMP Calculator Copyright 2010, 2012- Dr Paul Brewer -- Software license information