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The HAMP NPV Model: Development and Early Performance
Author(s) -
Holden Steve,
Kelly Austin,
McManus Douglas,
Scharlemann Therese,
Singer Ryan,
Worth John D.
Publication year - 2012
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1540-6229.2012.00351.x
Subject(s) - hamp , loan , loan to value ratio , net present value , value (mathematics) , foreclosure , key (lock) , economics , payment , actuarial science , credit score , business , finance , computer science , macroeconomics , medicine , mortgage insurance , hepcidin , computer security , machine learning , casualty insurance , production (economics) , inflammation , insurance policy
The foreclosure crisis that began in 2008 triggered the need for new approaches to treat distressed mortgages. 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 article discusses the development of the HAMP NPV Model, 1 its purpose and some important constraints that dictated its structure and limitations. We describe the structure and the estimation of the model in detail. We also describe the responsiveness of the model to key characteristics, such as loan‐to‐value and credit score, as well as provide new evidence on the relationship between HAMP modification performance and key borrower and modification characteristics. The article concludes with a discussion of model limitations and the future role of systematic loan modification using NPV analysis.