From Default Servicing News:
With tumbling property values leaving nearly a quarter of borrowers owing more on their mortgage than the home is worth, some may find it tempting to walk away even if they are financially able to keep making payments – either to get out from under the debt completely or to force the servicer’s hand for a modification. This idea of “strategic default” has become a universal concern within the industry, but one New Jersey company says it has a plan to counter such calculated flights of exodus.
According to the Loan Value Group LLC (LVG), it’s time to pay current borrowers to stay that way. The company introduced a new program this week that helps lenders and servicers identify borrowers at risk of walking away and implement an incentive program in which the homeowner receives a monetary “reward” if they remain current on their payments without changing the terms of the original mortgage note or reducing principal.
The Responsible Homeowner Reward (RH Reward) program was developed on a foundation of behavioral economics and employs patent-pending technology developed by LVG. The firm evaluates each individual borrower’s propensity to strategically default (as distinct from the risk of affordability default) based on a dozen criteria, including negative equity, income, and geography, and then determines the optimal size of each “reward.”