Net Present Value (NPV) Test A standard test that is applied when determining whether to modify a loan.

The ceiling on the allowable Discount Rate for the **NPV Test** is the Freddie Mac Primary Mortgage Market Survey rate (PMMS), plus a spread of 2.5 percentage points.

Loan Value = (1 - Redefault Rate) x NPV of Discounted Payments + Redefault Rate x (REO Disposition Value + Additional Accrued Costs) **NPV Test** (Continued) The formula used to estimate the cost of modification is: Description of the formula terms: FDIC Loan Modification Program Page 14 In Addition to Updated Liquidation Value, a Servicer must Formally Backtest Servicer and/or Portfolio Specific Assumptions and Regularly Update Assumptions Based on Industry Standards 1.

Mortgage Insurance: For loans that have mortgage insurance (MI) coverage, the **NPV Test** will incorporate the value of the contingent claim payment in the event of default when evaluating projected foreclosure or modification scenarios.

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