What is a loan modification denial based on the net present value (NPV) test?

May 16, 2020

Loan Modification Denial Based on NPV Negativity

Among the various tests that lenders/servicers use to review a borrower for a loan modification is the net present value (NPV) test. The NPV test shows how much a loan as an investment is worth today. Lenders use the NPV test to compare what a mortgage is worth today with what a mortgage is worth after a modification. If the modified mortgage has a greater investment value than the unmodified mortgage at its present state, it is likely that the NPV will be positive and the investor may have to modify the mortgage. If the NPV is negative, the investor is not legally obligated to modify the mortgage. Borrowers applying for non-FHA loan modifications may need to pass the NPV test, which means that the NPV needs to be positive in order to be modified. In other words, lenders use the NPV test to determine whether it is more profitable for them to foreclose on a property or to modify the payments. This means that homeowners with a lot of equity in their home may be more subject to loan modification denials based on the NPV test. And yes, lenders are permitted to render a decision based on the NPV test even during the COVID-19 pandemic.

That being said, I have seen instances where homeowners were approved for a modification even with equity in the property. It really depends on various other factors, such as the borrower’s source of income, the amount of household income, the amount of the past due balance, years past due, etc. It is worth noting here that even though lenders are permitted to deny a modification based on the NPV test, the denial must be in compliance with California Homeowner’s Bill of Rights. Among one of the issues that a foreclosure attorney would explore is whether the denial was in compliance with the various requirements set forth in California Civil Code Section 2923.6(f).

California Civil Code Section 2923.6(f) provides in pertinent part “If the denial is the result of a net present value calculation, the monthly gross income and property value used to calculate the net present value and a statement that the borrower may obtain all of the inputs used in the net present value calculation upon written request to the mortgage servicer.” See Civil Code Section 2923.6(f).

Determining Whether the Lender Used Proper NPV Inputs

In reviewing the inputs used to deny a loan modification as a result of a net present value test, the borrower is able to assess whether the lender has used the proper figures. If proper figures have not been used, the borrower may be able to appeal the decision. The Making Home Affordable website provides a handy and user-friendly tool for homeowners to double check the NPV inputs used by the lender:


The link above provides only a basic insight into a lender/servicer’s NPV test. To further explore your options it is always advised to consult an experienced foreclosure defense attorney.

Disclaimer: The information provided in this blog is informational, ONLY and generally based on California law. The subject matter and applicable law are evolving or in constant state of change. No legal advice is given and no attorney/client or other relationship is established or intended.

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