Saturday, February 21, 2009

HASP = Smithfield & Wainwright's "Mo Mod"?

Smithfield & Wainwright’s approach is as follows:

Any property eligible for Mo Mod™ must immediately be appraised by a qualified and licensed real estate appraiser...

Once the asset value has been determined, the financial institution can apply the 31-38% DTI (Debt to Income) ratio to the borrower’s current gross income to determine the maximum payment the borrower can afford. The financial institution can use the following tools to calculate a monthly payment that fits within the 31-38% DTI noted above: apply the lowest fixed interest rate, along with applying a new loan amortization period not to exceed 40 years.

The investment community along with the financial institution can use the NPV (Net Present Value) of future cash flows to determine the market value of this mortgage in the secondary markets. The basis of the net present value calculation will be determined by the projected future appreciation or depreciation of the underlying asset valuation over the next 7 – 10 years.

Key protections necessary to protect the financial institutions and current/potential future investors must include verification of income from the borrower via check stubs, tax returns and bank statements.

Estimate the cost of foreclosure on this property, the loss on the investment using the foreclosure process and the future affect to similar properties if that course is taken to determine savings to the financial institution and current/investors. Mandating the cost of the loan modification must be less than the estimated foreclosure loss.

Modification of any loan using all above mentioned aspects which would recognize the requirement of sound real estate valuation to quantify and exercise proper risk management for all aspects of the Mo Mod™ process. The investment community now has the correct analysis to review and audit the steps used during the loan modification process. Therefore providing the investment community the necessary risk management and stabilization controls to properly invest in portfolios regarding the real estate market utilizing the Mo Mod™.

1 comment:

  1. Great Post, this sounds like a very sound platform. I want to see more details of the plan and hope it will be offered to people that play by the rules in form of a lowered interest rate to offered on the same formula

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