Net Present Value (NPV) and Your Mortgage Loan Modification

Learn about the net present value (NPV) calculation and how it can affect your application for a HAMP loan modification.

Net present value (NPV) is an indicator of how much an investment is worth. Mortgage lenders calculate the NPV of mortgages to evaluate whether it is more cost-effective to provide a borrower with a loan modification or to foreclose.

What is the NPV Test?

An NPV test is integral to evaluating whether a mortgage is eligible for modification under the Home Affordable Modification Program (HAMP) and is the key step in obtaining a loan modification from your lender. It is a pass/fail test. If the results of the test show that a modification is NPV positive, this means the investor will get a greater return from modifying the mortgage, and you will get a loan modification. If the results are NPV negative, this means that a foreclosure is a better financial bet for the investor, and your loan modification request will be rejected. (For a thorough walk through of the loan modification process, see this page on Getting Your Mortgage Loan Modified.)

When HAMP was introduced in 2009, the parameters of the NPV test that mortgage servicers used to determine a borrower’s eligibility for a modification were a bit of a mystery. However, this changed when the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010. Now you can go to to calculate the NPV of your own mortgage and to learn about the formulas and variables involved in an NPV evaluation.

Why is the NPV Test Necessary?

It might appear obvious that a lender would make more money giving a borrower a loan modification rather than foreclosing and selling the property in a depressed real estate market, particularly if the mortgage is underwater (the balance owed on the mortgage outweighs the value of the home) and the borrower is able to make the modified monthly mortgage payments. However, many borrowers who are given a loan modification go into default again sometime in the future. The NPV test takes this into account and estimates the likelihood that the mortgage will go into default again and eventually end up in foreclosure anyway. If this is the case, the lender will foreclose rather than modify the loan because it makes more financial sense to liquidate their investment sooner rather than later.

How is the NPV of a Mortgage Calculated?

The loan servicer will look at the NPV of the proceeds expected from a foreclosure and sale of the mortgaged property based on reasonable estimates of the:

  • current fair market value of the property
  • costs to foreclose, repair, and maintain the property
  • costs incurred in marketing and selling the property (if not purchased by a third-party at the foreclosure sale); and
  • net sales proceeds.

The servicer will also calculate the NPV of the cash flow expected from a loan modification. Information required for a servicer to assess NPV for a loan modification includes:

  • income information for the borrower
  • current property value
  • interest rate (including a payment reset if your rate is adjustable)
  • recent credit scores for the borrower; and
  • mortgage debt information (for example, unpaid principal balance, original loan amount, remaining term, and monthly payment information).

The servicer compares the NPV for modification versus foreclosure; whichever is higher is the option the servicer will take. If a loan modification makes sense from an NPV perspective, the lender will make sure that the borrower can afford the monthly payments and modify the borrower’s loan.

Loan Modification Denials Due to NPV

If you were denied a HAMP modification due to your NPV evaluation, go to, enter the NPV input values your mortgage servicer gave you in your HAMP non-approval notice, and compare the outcomes on the website and in your notice. You have 30 days to correct any NPV values if you notice the servicer used incorrect information in their calculation. The servicer must suspend the foreclosure sale and re-run the test to see whether the corrected information leads to a different NPV outcome. Keep in mind that there could be different outputs due to differences in industry standards, so if you receive a result that differs from what your servicer provided in the notice, save a copy of your online evaluation and discuss it with your mortgage servicer.

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