My loan modification was declined due to NEGATIVE NET PRESENT VALUE. I do not understand nor anyone from Wells Fargo can explain to me how the Treasury Department come up with this result and decline my loan mod application. Wells Fargo is prepared to give me a loan mod at 3.5% interest rate, but when they submitted to the Treasury, the Government declined it due to the reason above. Can you help me to understand what number or criteria used to do this?
It is hard to give you an exact answer because you gave me very few numbers. The following are some reason that you might have gotten a negative npv:
a. The max payment that the bank can give you is 31% of your gross income. If that amount is to low to permit the bank to have a reasonable interest rate (for them), then it will be a negative npv.
b. It may be considered a negative npv if the appraised price of the home is high enough that a sale will yield enough to almost pay off the loan without a significant loss to the bank or the homeowner.
c. Other debt service may reduce the amount available for the modified loan payment as discussed above in a.
You have up to 30 days to protest the negative npv. Your best grounds would be to find some error in the inputs to the calculation. Ask the bank for the details.
How do you calculate NPV for cash flows that "last forever"?
This is called an annuity in perpetuity. The equation for NPV reduces to NPV=(Cash Flow)/i as the cash flows approach zero. This of course assume that the cash flows are a constant amount. So if you have a cash flow of $1,000 into perpetuity with a discount rate of 10% then the NPV would be $10,000. Calculation for NPV