Housing News

Think Twice About Walking Away From Your Home

A new program challenges those who are currently underwater

Would you believe that walking away from your home would actually prompt a lender to stop you from doing so in exchange for cash? No, this private company hasn’t fallen into hysterics but Loan Value Group, LLC of Rumson, N.J. has launched the Responsible Homeowner Reward to deter owners from abandoning their homes. The process is simple. LVC teams up with lenders to identify qualified homeowners according to their strict criteria. Should the owner decide not to leave the house or do a short sale, the “reward money” shall be granted but only after he pays off the mortgage.

How does LVC earn from this program? It charges lenders an administrative fee. That’s how simple this process is. But then again, some critics won’t leave the program unscathed. First, they argue that it’s nothing far from another Madoff scheme. We’ve reviewed the LVC’s white paper online and found nothing that would turn us highly suspicious. But then again, the success of this program would not lie on how many underwater homeowners that it has kept but on how it can remain profitable for the company without having the S.E.C. scrutinize any dubious transactions.

Second, some have commented that those who are in high foreclosure areas might as well pack up and save the money that they’ll be paying for their current home’s mortgage for another home that’s more affordable. This could derail the purpose of LVC but there’s definitely a good market that they can tap.

Third, the criteria set make qualification highly stringent. Jennifer Schultz of the New York Times writes, “In addition, the rewards are by invitation only, because they target specific borrowers likely to default. That means you can’t call your lender up and ask for a reward… To identify those borrowers most likely to strategically default, Loan Value Group analyzes loans using about a dozen criteria. These include negative equity level (say a loan-to-home-value ratio of 115 or higher), income level and geographic location. Then, it uses similar criteria and behavioral economic theory to determine the necessary reward amounts for such borrowers.”

Finally, others are aware that this might be short lived considering the concept that the program was based on. It may be something new to a very turbulent property market but it can be worth of a try. After all, haven’t we had enough of taxpayers’ money salvaging banks? This time, we’re relying on private money for a change.

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