With nearly one in four homes in the nation currently in a position of negative equity, strategic default is quickly becoming more than a fleeting thought for many homeowners, particularly in hard-hit states like Nevada, Arizona, California and Florida that have experienced enormous drops in housing values. Loan Value Group LLC is addressing the problems faced by many homeowners with the launch of a new Web site, RHReward.com. The Responsible Homeowner Reward Program is the only program available that rewards the homeowners who continue to pay their mortgage on time.
“Why would someone reward you for paying your mortgage?” asks Frank Pallotta, executive vice president of Loan Value Group. “Because owners of residential mortgage risk are beginning to realize that a shared solution to the extraordinary drop in home values experienced in this country over the past two years is needed if we are going to address this crisis, stabilize our communities and help ‘re-equify’ the borrower.”
Founded by mortgage finance experts, Loan Value Group created the RH Reward program to offer incentives for homeowners to remain current on their mortgages by providing an opportunity to “earn” a significant cash reward when the mortgage is paid off, or if the home is refinanced or sold. There is no charge to eligible homeowners whose financial institutions chose to participate in the program.
Here’s how the RH Reward program works:
►The homeowner with negative equity is presented with an initial RH Reward amount.
►The homeowner makes their full and timely mortgage payments, to keep their RH Reward status active.
►For a fixed period of time following registration, an additional amount of money will be added to the initial RH Reward amount for each month the homeowner maintains active status.
►Once the mortgage balance is paid in full either by sale of home, refinance of home, or paying off the mortgage, the homeowner can withdraw the entire RH Reward amount.
Strategic default, which was almost unheard of three years ago, now represents nearly 25 percent of all residential mortgage defaults.
“If an incentive-based solution is not adopted rapidly, strategic default will likely accelerate as house prices continue to decline,” said Alex Edmans, a professor of finance and behavioral expert at The Wharton Business School and an academic advisor to Loan Value Group. “In addition, given contagion effects in strategic default, deterring one homeowner from defaulting may help deter others.”
Mortgage lenders, investors and insurers will also benefit from an incentive-based solution to strategic default. In nearly all asset liquidations, the bank stands to lose substantially more than the amount of accumulated negative equity, so it’s clearly in the best interest of the financial institution to find a viable solution to avoid the delinquency, foreclosure and liquidation costs associated with a default.
The RH Reward program was created with a foundation in behavioral economic theory, using patent-pending technology and consumer marketing expertise to reach eligible borrowers. Unlike most loan modification strategies, which look only to the borrower’s income to lower their monthly payments, RH Reward directly addresses the borrower’s negative equity without requiring their financial institution to write down principal. Many experts have pointed to a borrower’s negative equity as the primary reason most loan modifications “re-default.”
For more information, visit www.RHReward.com.