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The HAMP NPV model: development and early performance

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  • Holden, Steve
  • Kelly, Austin
  • McManus, Doug
  • Scharlemann, Therese
  • Singer, Ryan
  • Worth, John

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.

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File URL: http://mpra.ub.uni-muenchen.de/32406/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32040.

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Date of creation: 02 Jul 2011
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Handle: RePEc:pra:mprapa:32040

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Related research

Keywords: mortgage modification; loan modification; HAMP; Home Affordable Mortgage Program; NPV test; Net Present Value Test; distressed mortgage;

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  1. Ambrose, Brent W & Capone, Charles A, Jr, 1996. "Cost-Benefit Analysis of Single-Family Foreclosure Alternatives," The Journal of Real Estate Finance and Economics, Springer, vol. 13(2), pages 105-20, September.
  2. Manuel Adelino & Kristopher Gerardi & Paul S. Willen, 2009. "Why don't lenders renegotiate more home mortgages? redefaults, self-cures, and securitization," Working Paper 2009-17, Federal Reserve Bank of Atlanta.
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