Get Paid To Pay Your Mortgage?
HOME LOANS, INDUSTRY NEWS, TIPS FOR SELLERS
February 15th, 2010
That’s right! An experimental program has been launched to entice homeowners not to walk away from their mortgages that are underwater by offering a cash reward if they keep their payments current. According to a Wall Street Journal blog, Loan Value Group LLC is launching a pilot program to determine if rewarding borrowers with cash is enough to keep them from abandoning their home loan(s).
The mortgage investor will base the size of the incentive on factors such as the amount the borrower is upside down on their loan, their income, and other risk factors. The “responsible homeowner reward” will grow over a period up to five years as long as the homeowner makes scheduled mortgage payments. The general idea is to change the psychology from the buyer’s perspective from focusing on how much they owe to how much they could gain by staying the course. The reward is not large enough to offset negative equity but allows the borrower to keep their home until prices stabilize and possibly recover value and avoid negative impacts to credit scores caused by foreclosure.
I believe the problem is too big for this program to help. Banks will do anything to keep these overpriced assets on the books which makes them look stronger on paper. Once the properties are foreclosed and resold at a loss, the true value of these properties will be reflected on their balance sheets which will not make shareholders happy. Likewise, top exec’s will have a hard time justifying obscene bonuses if their financial statements are bleeding red ink.
Any borrower considering a program that modifies their original loan should proceed with caution. California law dictates that purchase-money loans do not allow the lender to seek a deficiency judgement. In other words, a bank cannot come after you for a loss after foreclosure if the loan was used to purchase the home. However, if the loan was modified or refinanced after the original purchase, the lender can typically pursue the debt through collections after a foreclosure for years to come. Borrowers should consult with qualified tax and legal professionals before agreeing to a refinance or loan modification to determine if any protections are being lost in the process.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL SALES EXPERIENCE
