Posted on 07/11/2011 7:52:54 PM PDT by Fred
At what point is moral hazard trumped by corporate survival and the cold hard need to get people to pay their mortgages? The answer is: Now.
As home values continue to fall and more borrowers fall into a negative equity position on their home loans, those who stand to lose, banks and investors, are working to keep borrowers current.
To date, they have focused on delinquent borrowers, offering loan modifications and foreclosure alternatives, like short sales and deeds in lieu of foreclosure.
Last fall, New Jersey-based Loan Value Group launched a new business model, offering lenders and mortgage investors a way to keep their current, but underwater, borrowers current through cash incentives.
It's called Responsible Homeowner Reward, and today, one of the nation's largest mortgage insurers, PMI Mortgage Insurance, joined in.
Here's how it works. Borrowers pay nothing. They sign up with the program, promising to keep current on their mortgages for a certain period, generally 36 to 60 months (LVG has worked out the contract with the participating lender/investor).
After that period, the borrower will be paid anywhere from 10 to 30 percent of the loan principal, depending on the contract, in cash. The lenders/investors pay LVG, which receives a servicing fee, and LVG pays the borrowers. Again, the borrowers pay nothing for this bonus.
(Excerpt) Read more at cnbc.com ...
Where is the money coming from!
You. Eventually.
Bogus CNBC headline...not “everybody” has PMI (private mortgage insurance) on their loan. (Me included).
It says you have to be underwater, right? A lot of irresponsible people who borrowed right up to the value of their house are going to benefit from this. There’s more to being responsible than being current.
I removed PMI after 1 year in a refi and paid off my mortgage a few months ago (after a little over 10 years).
I am OK with how it all worked out.
My rule: if you can’t pay cash for it, you don’t need it.
When I forget, Mrs. FD “reminds” me.
And, to be fair, when I have gotten her expensive gifts (in the past) she was more upset than happy. So every occasion I have the problem of treading the line between “enough” and “too much.”
I am sure most Conservative men have the same problem with Conservative wives (even if in secret).
God bless us all!
Your wife sounds a lot like mine.
God Bless them.
OK. So how do I get my hands on this filthy lucra? I’m current and I plan on being current for at least 5 more years. Where’s my slice of pie?
I looked on the company website and saw nothing on how to sign up.
http://www.loanvaluegroup.com/about/about-lvg
Where is my hand out? I’ve been on time for the past 2 years and will have it paid off in Feb as long as the new job pans out :)
oh thats right. I am the dumb one. Should have let it go past due.
>>OK. So how do I get my hands on this filthy lucra? I’m current and I plan on being current for at least 5 more years. Where’s my slice of pie?<<’
Be irresponsible. have a $200 a week job and get Prada purses and wallets, $300 weaves and refinance your $10K equity to the extent (even in today’s market) possible — even if a paltry $150K. Go to Vegas, gamble dusk ‘till dawn. Wear $1,000 suits and smile at the cocktail girls ‘cause you a playa.
Then cry to the gummit ‘cause you can’t make the new refied’ mortgage.
The stand in the wings and wait — so long as liberals run the system you will continue to get weaves, Prada, ‘dubs and all you want without a penny.
And then get your WIC (to resell to the corner dude at 50%) and Food Stamps (even better at 75%).
You needed me to remind you of these basic facts? Like birds flying and fish swimming?
You. Eventually.
You may count on it.
Pay and you get to keep living in the house don’t pay and you should be kicked out on your ass!
“My rule: if you can’t pay cash for it, you don’t need it.”
I was raised by that rule and have lived by it for all my 74 years!
Just think, it is now cheaper for mortgage insurance companies to give customers 10-30 percent OF THE PRINCIPAL than to eat the difference of houses that are under water!
Diana, your analysis is all wrong.
This is a private sector solution to a business problem. Any “moral hazard” is creates is only a reaction to the moral hazard created by the lenders’ business practices in the first place.
For those for whom this truly represents a “reward” for being responsible, is there anything wrong with that? Many businesses reward their good customers. And it’s about dang time that responsible homeowners get looked at as partners in any potential recovery, rather than all the focus on deadbeats who are takers, not contributors, and who will default again and again no matter how much money is thrown at them.
Giving money to people who are responsible with their money, and who (even if irresponsible) still have enough money left in this economy to pay their mortgage, is truly stimulative. It’s the underwater homeowners who are paying who have the means, if their burden were only lightened a little, to carry the recovery to fruition.
If all the money thrown at those who truly cannot and will never be able to pay their mortgage had been funneled instead to these “responsible homeowners,” the cash would NOT have gone down the drain. They would have felt better, sooner, about their ability to come back from their housing value losses and this, at least, would have had some chance of stimulating/continuing consumer spending at non-Great Depression levels.
You are absolutely right, a complete buisness decision. Simple math by the bean counters of these mortgage insurance companies.
Like I said, its crazy times when its CHEAPER to do this than to run the risk of strategic defaults.
As far as trying to help people, they don’t care. The bottom line profit is what matters.... and rigtfully so.
Oh I also agree this is way better than taking taxpayer dollars and giving it to the people who were the most irresponsible in the first place!
If you pay your mortgage on time then you must be part of the “evil rich” class that the left hates so much. They’re going to make you pay more of your fair share!
I have even said in the past that, assuming the federal guvmint was going to attempt a housing “bailout” anyway, it would have been better to use the billions to “fund” a quadrupling of the mortgage interest deduction for every homeowner current on his mortgage for the tax year.
The key at the beginning of the Obama Depression was reducing the monthly housing costs of those who could keep the boat afloat, but who were in financial shock from losing 40% of the value of their home and 50% of the value of their portfolios.
Had these families been given the dough — through some proportional mechanism such as “rewarding” them with a higher tax deduction for paying their mortgage— and thus felt like they were getting recognized as positive (responsible) contributors and felt like they could venture a little more consumer spending, this would have been a much more stimulative effect than pouring money down the rathole of a mortgage the homeowner could never keep current.
P.S. If the guvmint would get out of the way, I’d bet that many people could come up with private sector financial products that addressed a need (demand) and made a profit. All good.
For example, let’s say many homeowners could sell or refinance their home only if they put $50-100K on the table. In this economy, most people are not willing to pony up that amount even if they have it.
But what if a company offered a second trust to highly qualified homeowners at a fairly good rate? The homeowner could use the second trust to lower the loan-to-value ratio that was keeping him from refinancing his entire mortgage to a lower (less risky to the lender) rate, even if he paid a little more on the small amount of the second trust.
Since companies could choose their clients carefully, and write these second mortgages with appropriate safeguards, they could make a good profit BY providing a product that would be in great demand — a product that allowed those who presently cannot refinance to a better rate to refinance. Which the mortgage company would also make money on upfront.
The private sector could and would come up with products to help fix the housing market, but not as long as the feds are distorting the market by throwing billions at losers.
>>I was raised by that rule and have lived by it for all my 74 years!<<
I ABSOLUTELY will not follow “ all my 74 years” with “and I am 60 years old!”
I won’t, I promise! ;)
Seriesly, when I was young I got caught in the credit is easy thing. I did stupid things, but, thank God, not so stupid I couldn’t come back from them. And I am not joking when I say my wife was such a blessing.
After the early snakebites, I HATED debt — I understood it, and how smart financing can make sense. But my wife helped me take it from concept to execution. We needed 2 cars — OK, we didn’t have cash for them.
My older car was totalled in an accident, and I used all the money from that to get a newer car. One of the proudest days of my life was when the salesman told me “in my 20 years of car sales I have never seen a better credit score” (it was 822). My wife was again the smarts that made it all happen. “Yes dear” when you agree on finances is a GREAT marital strategy!
We needed and got cars we could enjoy but made financial sense — then overpaid on the cheaper one until it was paid of in 1/2 the loan time. We then plowed that car payment into the other one (double paying). Then, when the cars were paid off, we took all that and added it to the mortgage and paid that sucker off.
The whole time, we kept a fund for appliances and what have you. I still have tube TVs and a non-B/R DVD player I got free from Amex points.
I might have been unwise in my youth, but I married up and try to be wise in these latter years.
And today, let’s face it, cash is king! I didn’t predict it but my planning is paying off.
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