The HAMP NPV model: development and early performance

Holden, Steve and Kelly, Austin and McManus, Doug and Scharlemann, Therese and Singer, Ryan and Worth, John (2011): The HAMP NPV model: development and early performance.

Abstract

The foreclosure crisis that began in 2008 triggered the need for standardized tools to evaluate distressed mortgages as candidates for modification. A key component of the Obama Administration’s Home Affordable Modification Program (HAMP) was the development of a standardized Net Present Value (NPV) model to identify troubled loans that were value-enhancing candidates for payment-reducing modifications. This paper discusses the development of the HAMP NPV model, its purpose, and the constraints that dictated its structure and limitations. We describe the structure and the estimation of the model in detail. Furthermore, we describe the responsiveness of the model to key characteristics, such as loan to value and credit score and provide new evidence on the relationship between HAMP modification performance and key borrower and modification characteristics. The paper concludes with a discussion of model limitations and suggestions for further refinement of the model.

• Item Type: MPRA Paper
• Language: English
• Keywords: mortgage modification; loan modification; HAMP; Home Affordable Mortgage Program; NPV test; Net Present Value Test; distressed mortgage
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D18 - Consumer Protection; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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