Hi, I’m Derik Lewis from Lawyers Realty Group. We are here to assist you with all of your real estate and short sale needs in the Southern California housing market. If you are facing foreclosure and seeking an alternative to it, you can always consider short selling your home.
I’ve been getting a lot of calls recently regarding people getting letters from their lender stating their loan modification application has been denied due to the net present value test. I have a three part blog on the net present value test on our website if you wanted to take a look at it for a more detailed explanation, but I just wanted to touch on it briefly here today.
When you apply for a loan modification, there are two tests a lender has to go through. The first is a fairly easy concept, the affordability concept; you look at your gross income and the guidelines say you can afford about 31% of your income towards you housing debt. If you are above 31% the lender can reduce their rate and extend the term; if they can do these things and get you to the 31%, then you are approved on the first part of the test.
The second test is the net present value concept, which is a problem for a majority of people. Basically, the bank is looking at the value of the property and trying to determine if they were to foreclose and sell, how much money would they make in that sale. What they do is compare the amount they would make in the sale versus giving you the loan modification you would need to get you to that affordability rate and seeing which one has less of a loss to them. If selling the property gets them more money, then their guidelines dictate that they have to sell that property rather than give you that loan modification.
If you have any further questions regarding this or other alternatives to foreclosure such as short selling your home, please visit our website or contact us. We can help you assess your situation, save your credit and short sell your home.