RH Program Extends $90m to Borrowers for Staying Current on Mortgage
A program launched by the Loan Value Group (LVG) that pays borrowers incentives to remain current on their mortgage payments has offered $90m in rewards. The Responsible Homeowner Reward (RH Reward) program, which was launched early in the year, has been put to use by some servicers and mortgage companies looking to trim the risk of strategic default. Through the program, LVG works with the owners of risk-laden mortgage 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. "In the next three to five weeks, we'll pass $100m comfortably," Frank Pallotta, managing partner and executive vice president at LVG, told HousingWire. The program is a possible tool to combat problems with negative equity. 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 when the program launched. Now, the RH Reward program has been included as an alternative resource in the Ohio's Hardest Hit Fund (HFF) for homeowners who owe more on their mortgage than the home is worth but who may not qualify for the fund. While the HFF money is not going to fund the RH Program, the Ohio Housing Finance Agency (HFA) listed the RH Program as a alternative in its submission to the Treasury Department. "Over the last six months, strategic default has really gone from a 'myth' to 'something that's happening' to 'it's happening to me and my portfolio,'" Pallotta said. Pallotta referenced a survey conducted by economists Luigi Guiso, Paola Sapienza and Luigi Zingales. Respondents who knew someone else who strategically defaulted, were 82% more likely to do so. "When you're seeing strategic default making its way into normal prime paper, you're finding out that when borrowers have a choice, they're really starting to consider the choice that no one thought they would consider which is default on the first lien," Pallotta said. Write to Jon Prior.