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.
The PMI deal works the same, with PMI paying a scaled reward for select borrowers over a five-year period. If the borrowers stay current, they earn the payoff over the five years and receive the cash at the end. PMI created its own subsidiary, Homeowner Reward, but that subsidiary will work with LVG, and PMI will pay LVG an administration fee.
To date, 38 states have borrowers enrolled in the LVG program, totaling approximately 10,000, according to LVG. The largest number of borrowers are from the hardest hit states, California, Florida, Arizona, Nevada and Michigan.
So far, RH Rewards has offered, but not paid out, $107,393,922, according to the company’s website.
“All of those states have achieved greater than 50 percent reduction in default rates than respective control group,” said an LVG spokesperson.
Okay, so now that we get it, we have to ask what exactly are we getting here? From a purely business perspective, it makes sense. By targeting borrowers with the most negative equity and therefore at the greatest risk of strategic default, lenders and investors are cutting their losses by keeping the borrowers current. They stand to lose more in a foreclosure.
But does it sound slightly ironic to anyone else that a mortgage insurance company, whose business is to insure loans by charging borrowers premium fees, is now paying those very same borrowers back to stay current on the loans they’re insuring??
“For borrowers in our pilot program, Responsible Homeowner Reward (SM) provides an incentive to stay current on their mortgage by helping them earn an offset to the decline in home values. Such programs, if successful, could reduce the incidence of foreclosure, which could help stabilize house prices and stabilize communities,” said Chris Hovey, PMI’s SVP of Servicing Operations and Loss Management.
It’s business, a numbers game where companies have now figured out how much they need to pay to avert a larger loss. Apparently we have hit that tipping point where strategic default is now so pervasive and so acceptable that companies are forced to pay borrowers to stop.
So what exactly is the difference between that and principal write-down, which the big lenders seem to abhor as a bigger moral hazard even for borrowers facing foreclosure?
In an interview with HousingWire back in April of this year, the managing partner of LVG, Frank Palotta, said, “There is little focus on loss-mitigation efforts for current loans, as these homeowners typically pay. As a result, the vast majority of these homeowners are left with no other option than to become ‘the squeaky wheel’ by becoming delinquent in order to receive a call from their servicer.”
a) why do we need loss-mitigation on current loans? These loans are current, and until they go 30 days delinquent, we need to focus our loss-mitigation on the huge volume of borrowers who are in trouble. And b) why do current borrowers have “no other option that to become….delinquent” to receive a call from a servicer? Why does a servicer need to be holding the borrower’s hand at every step, cajoling and coddling him/her into fulfilling a contractual obligation?
Hat tip to shadash for sending this along, from thenctimes.com:
San Diego County court administrators will end the decades-old practice of selling foreclosed houses on the courthouse steps in downtown San Diego on Aug. 31, administrators said Monday.
Trustee sales, in which lenders auction off foreclosed properties, grew in popularity in recent months as investors went looking for cheap houses to fix up and sell or rent. What once attracted a dozen professionals can now bring in 40 or more interested buyers on any given day.
San Diego County joins Riverside, Los Angeles and other California counties in pushing the practice off its courthouse property. Sending the auction to a new, to-be-determined site could cost trustee companies, which sell the houses, thousands of dollars in advertising costs. But the courts have no obligation to host the auctions.
“Out of tradition, these sales have been held on the steps of the courthouse from a time when such sales were conducted by the court,” Michael Roddy, court executive officer, said in a written statement. “That is no longer the case; these are commercial activities being conducted on public property. These sales not only lack proper permits for conducting business in such a manner but they impact court business.”
Most of the sales at the downtown courthouse steps are run by Fidelity ASAP. The company did not immediately respond to request for comment.
Trustee Assistance Corp., based in Santa Ana, conducts most of its San Diego County auctions at a city-owned building on Nevada Street in Oceanside. The move by the San Diego courts won’t affect their workings much, said Renee Patrick, but she expects to fight the ban along with other companies.
When location of a trustee sale changes, state law requires trustees to send new notices to borrowers and re-advertise properties that would be sold at the new site, a practice that costs from $600 to $700 per property, she said.
“If we had to re-advertise on all these files, that’s an enormous amount of money,” Patrick said.
Back in the day when there weren’t loads of short sales, we used to compare the actives to pendings to get a read on the relative ‘health’ of the marketplace.
With banks pushing harder to close the short sales (though the timelines are still uncertain), and because the buyers who have secured a short sale have hopefully done so at an attractive price making it more likely for them to hang around, let’s add the listings marked ‘contingent’ to the pending category:
Here’s our scorecard, historically, of the ACT/PEND ratio:
0-2 Hot market
3-4 Regular market
5-6 Market in trouble
7-8 Too many choices
9+ Freefall
Town or Area
ACT
PEND+CONT
A/P+C
Carmel Vly
212
69
3.07
Carlsbad
481
227
2.12
Del Mar/SolB
201
36
5.58
Encinitas
189
73
2.59
La Jolla
265
54
4.91
RSF
271
36
7.53
Totals
1,619
495
4.27
There were days that RSF and La Jolla were 10.0+. Can we call it relatively healthy now?
SPG Architects transformed an abandoned steel frame and concrete slab structure into a five-level, 18000 SF, indoor-outdoor residence on a rain-forested mountainside overlooking the Golfo Dulce.
This house’s total usable area sits on approximately 6000 SF of forest floor, and the 18000 sf of this indoor/outdoor house is spread over 5 levels. The owner preserved more than 100 acres of developable rainforest and built on far less than 1 acre. In addition, the structure was existing and abandoned when first visited by the architects and was strengthened for seismic loads, modestly reconfigured and re-used. More pics here.
Hat tip to Auntie Agent for sending this in, from thelatimes.com:
A diamond-encrusted lining is emerging in Southern California’s cloudy real estate market.
At least a half-dozen Westside mega-estates have sold for more than $20 million so far this year — creating a deafening buzz in local realty circles. Only a few home sales in other Southland counties have surpassed the $20-million mark.
On the horizon is the close of Candy Spelling’s larger-than-White-House-sized “Manor,” which has reigned supreme from its $150-million listing price perch in Holmby Hills for more than two years and is expected to eclipse last year’s record $50-million Bel-Air sale by a wide margin. A $100-million home sale this spring in the Silicon Valley is believed to have set a U.S. record.
Even though L.A.-area sales in this upper price sphere are outpacing those of the same period last year, this market sliver is still too small to be considered statistically significant. Yet real estate experts and agents are cautiously optimistic that the spate of sales signals a turning point in the larger market.
“It’s highly likely we would not see this activity if there wasn’t a growing belief that we were close to the bottom of the market, ” said Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA’s Anderson School of Management. “Certainly on the Westside of L.A. we are close to the trough. That doesn’t mean there isn’t a likelihood of future price drops, but the worst is behind us.”
More than four years into the housing downturn, L.A.-area prices are generally back to 2003 levels, he said. Southern California’s median home price has fallen nearly 45%, to $280,000 in May, from the mid-2007 peak of $505,000, according to DataQuick, a San Diego real estate information service. The decline also reflects increased sales at the lowest end of the market, where cheap foreclosures are attracting cash-rich investors.
“All the increase we saw during the boom period,” Gabriel said, “has been purged from the system.”
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.
