The PMI Group believes an incentive program designed to offer underwater borrowers cash in exchange for keeping current with their mortgage payments will go a long way to help offset the decline in loan values and by extension, stabilize communities.
It is teaming up with the Loan Value Group, Rumson, N.J., to offer this program, RH (Responsible Homeowner) Reward, through a newly created subsidiary at the mortgage insurer, Homeowner Reward Co.
The rewards build up over a period of time, with the borrower getting the reward after a refinance, reaching the point where they no longer mortgage insurance or five years.
It was in January 2010, that LVG developed the program, seeing what the impact of the growing number of strategic defaults was having on the owners of mortgage loans.
LVG executive vice president and managing partner Frank Pallotta explained in a strategic default scenario the loss to the mortgage lender could be as much as two or three times the amount of negative equity.
The company’s clients for this product are the banks or other financial institutions that face this kind of risk. PMI owns first loss risk on a mortgage loan, he pointed out.
Pallotta said this kind of program is in essence a loan modification, but without ever having to touch the note.
There is no charge for borrowers to participate in the program and it is voluntary. However, the borrower needs to enroll in the program to be eligible.
PMI Mortgage Insurance Co. continues “to seek creative and effective loss mitigation strategies,” said its senior vice president of servicing operations and loss management Chris Hovey. “The interests of PMI are uniquely aligned with those of homeowners. PMI is especially supportive of homeownership retention efforts in states that are facing unprecedented housing challenges.”
It is beginning its outreach efforts to borrowers on mortgages in its insured portfolio right away to get them involved in this program.
The mortgage insurer’s participation in this program is right now in the pilot phase, and the company will be tracking the results before moving further.
PMI is the first mortgage insurer to be a part of this program at LVG. And the two will work together to address the risk of borrower strategic default, Pallotta said.
LVG will be servicing the program accounts for PMI. RH Reward is the biggest program LVG has ever done, Pallotta said. Its website explains the company’s goal is to “positively influence consumer behavior on behalf of residential mortgage owners and servicers.” LVG offers a turnkey solution that can be privately labeled.
