The HAMP NPV Model: Development and Early Performance

FHFA Working Paper No. 11-1

40 Pages Posted: 25 Jul 2011 Last revised: 1 Aug 2011

See all articles by Steve Holden

Steve Holden

Federal National Mortgage Association (Fannie Mae)

Austin Kelly

Federal Housing Finance Agency (FHFA)

Douglas A. McManus

Federal Home Loan Mortgage Corporation (FHLMC)

Therese C. Scharlemann

Board of Governors of the Federal Reserve System

Ryan Singer

FDIC, Division of Insurance and Research

John Worth

National Credit Union Administration

Multiple version iconThere are 3 versions of this paper

Date Written: July 9, 2011

Abstract

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 paper discusses the development of the HAMP NPV model, its purpose, and some important 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.

Keywords: mortgage modification, mortgage default, HAMP, Home Affordable Modification Program

JEL Classification: D1, D18, R2, R21, G2, G21, R28, R38

Suggested Citation

Holden, Steve and Kelly, Austin J. and McManus, Douglas A. and Scharlemann, Therese C. and Singer, Ryan and Worth, John, The HAMP NPV Model: Development and Early Performance (July 9, 2011). FHFA Working Paper No. 11-1, Available at SSRN: https://ssrn.com/abstract=1882692 or http://dx.doi.org/10.2139/ssrn.1882692

Steve Holden

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Austin J. Kelly (Contact Author)

Federal Housing Finance Agency (FHFA) ( email )

1700 G St. NW
Washington, DC 20552
United States
202 414-1336 (Phone)

Douglas A. McManus

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States
703-903-2953 (Phone)

Therese C. Scharlemann

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Ryan Singer

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

John Worth

National Credit Union Administration ( email )

1775 Duke Street
Alexandria, VA
United States

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