The Unofficial HAMP Loan Modification Calculator v2.7-beta

Since 2007 The Arm Disarm Story

• All calculations are provided completely free of charge. Free. $0.00. Nada. Use "www.armdisarm.com"
• No advertising here, for now...
• Please beware of scammers and idiots who suggest bizarre schemes like stopping loan payments or signing away your home and leasing it back.
• I do not provide personalized help with loan modifications. Free help is available from the governments toll free numbers listed at www.makinghomeaffordable.gov
• This unofficial calculator is not associated with the government or any bank . Calculations are based on independent research of public documents describing HAMP loan modification procedures. Docs can be downloaded below.
• The calculator is implemented in 100% javascript and may be examined at the source code repository. This code is available under the GNU General Public License. Web site code in use may differ.
• This free software is WITHOUT WARRANTY OF ANY KIND and you agree that ALL USE IS AT YOUR OWN RISK.
• Calculations shown here may differ from those provided elsewhere for many reasons. Never make public accusations of fraud where a mistake, or different inputs, might also provide an explanation.
• Privacy policy: Your name, email, or other personal information is never needed for calculations. Javascript performs the calculations on your computer web browser, not on our server -- therefore calculator inputs and outputs exist only on your computer and are never recorded on our server or transmitted across the internet. By visiting, you agree our web server may record standard technical information useful for measuring audience statistics and resolving technical issues and that Google Analytics may use their tracking cookies and other technologies to record and provide audience statistics. Visits by State: 2012H2 2013 2014 2015

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, 2016

Inputs

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

Zero +1% +2% +3% +4% 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.

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

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

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

• "Form 710 Uniform Borrower Assistance Form" (use google to find this), appears to be one of the main sources of information borrowers provide. It can be found at various banks and Freddie/Fannie websites.
• Freddie Mac's servicer Learning Center, under section "Online Self-Study", has a 30 min slideshow entitled "Determining Imminent Default For Modifications". Summary of 30 minute slideshow (viewed April 19,2013):
  1. Borrowers with $25,000+ in savings are NOT in imminent default. Reported total savings (any non-retirement account, including savings, checking, CDs, stock market) must be below $25,000.
  2. Sanity check the total savings using a copy of borrower's IRS tax returns. For instance, divide interest income reported on tax return by average market interest rate (0.01) to guess at total savings. (That means $250 in interest income roughly = $25,000 savings at 1% interest rates). Discrepancies are supposed to indicate additional contact with the borrower for possible expanation / resolution.
  3. If savings are below $25,000, collect information (income, credit scores, etc.) for the "Imminent Default indication" computer program which involves the workers uploading files to a server and waiting to download the results. This is a batch process involving excel spreadsheets for multiple loans, with inefficient one-error-at-a-time critical error notifications.
  4. The computer program may or may not make a determination.
  5. If the computer cannot determine, then imminent default can be determined via acceptable imminent default hardship documentation. Not all reportable hardships are listed here as imminent default hardships. It would be easy to misread this material, but the imminent default hardships appear to be limited here to:
     • Death (But please don't kill yourself!, or your spouse!)
       A youTuber has made a well produced, darkly comical video about a bank he alleges asked him for his own death certificate. Click here to watch.
     • Major medical bills or certified disability, including dependent family members
     • Divorce or separation of borrwers, including unmarried borrowers.
     One possible interpretation of this material is that hardships like changes in employment or income, distant relocation, business failure, or natural disasters are reportable on the Form 710 but don't make the short list of what can be documented by the case worker if the imminent default indicator computer program does not confirm an imminent default. There are more harsh and more lenient interpretations. For instance, policy documents can be incomplete and then expanded.

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:

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"

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