Will Mortgage Lenders Offer Cash to Stay Current?

by Alex Stenback on February 8, 2010

Well, we already have “cash-for-keys,” (where those facing foreclosure are offered a financial incentive to not trash the place on the way out the door,) so I suppose this was inevitable.

Nick Timiraos over at the Wall Street Journal Developments blog reports that an outfit called Loan Value Group LLC is pitching a new program to mortgage investors and servicers who fear strategic default (or “Walk-Aways”) by homeowners with negative equity:

Here’s how the program works: The mortgage investor (possibly joining with other risk holders, such as mortgage insurers or second-mortgage holders) offers a cash reward to borrowers if they agree to keep paying their mortgage. The incentive amount varies by borrower depending on income, negative equity, geography and other risk factors—those who are more likely to cause steep losses receive a bigger carrot. The “responsible homeowner reward” grows for up to five years as the borrower makes monthly mortgage payments.

I’d be astonished if this idea gains broad acceptance –  it seems pretty obvious that you’d be paying the people most likely to NOT strategically default in the first place, which is sort of beside the point.

Unless the carrot is very big indeed - as Archimedes is said to have remarked, “With a big enough lever and a place to stand, I can move the earth.”

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