New Program Rewards Current Mortgage Borrowers
Loan Value Group (LVG) launched a new program that creates incentives to borrowers who remain current on their mortgage payments. LVG provides solutions to lenders and mortgage companies at risk of strategic default. The February issue of HousingWire tells the story of one borrower who strategically defaulted on her mortgage payment, walking away from nearly $200,000 in outstanding mortgage debt. Through the Responsible Homeowner (RH) Reward program, LVG works with owners of risk to enroll borrowers showing signs of strategic default. LVG evaluates negative equity, income, geography and other factors to determine the risk of an individual borrower and the size of the reward. Frank Pallotta, managing partner and executive vice president at LVG, told HousingWire that the owner of the risk, whether it be the bank or mortgage insurance company provides the reward based on the LVG evaluation. “The reward comes from the entity that holds the risk. If there are more than one, they can get together and decide how the reward is broken down based on how much risk each party holds,” Pallotta said. For example, if a borrower has a $200,000 mortgage and the value dropped to $150,000, a bank using the RH Reward program could give a $25,000 incentive to the borrower if the borrower remains current. How that reward is monetized depends on the borrower. If the borrower stays current until he or she sells the home, the $25,000 reward goes to the difference between the sales price and what is owed. The borrower pockets the net, Pallotta said. RH Reward is a possible free-market solution to the negative equity issue. Pallotta said that possible 10% hit to the banks is less costly than modification, short sale or deed-lieu of foreclosure. If the loan stays current long enough, that hit could shrink to as low as 2% as the borrower continues to make payments. “There is no cost to the borrower whatsoever, yet the homeowner receives the full benefit of the Reward,” said LVG CEO Howard Hubler. “At the same time," he added, "one of the key selling points of RH Reward is our ability to offer the program to owners of risk in a variable cost, turn-key fashion without burdening their current infrastructure.” An unnamed US client participated in the roll-out phase of the program; an investor reported to have bought and sold more than $5bn of debt since 2008. Write to Jon Prior.