<ul><li>Does mortage strategic default really exists? Monday, November 9, 2009 by Analytics & Credit Decisions /Experian --by Tracy Bremmer </li></ul><ul><li>http://www.decisionanalyticsblog.experian.com/blog/analytics-and-credit-decisions/does-mortage-strategic-default-really-exists </li></ul>There has been a lot of hype these days about people strategically defaulting on their mortgage loans. In other words, a consumer is underwater on their house and so he/she makes a strategic decision to walk away from it. In these instances, the consumer is current on all of their non-mortgage accounts, but because the value of their home is less than what they owe, they make the decision to default on their mortgage loan. Experian and Oliver Wyman defined these populations as follows: • Strategic defaulter - Borrowers who are delinquent on their mortgages, even when they can afford the payment, because their loan balance exceeds the value of their home, • Cash flow manager - Borrowers facing delinquency issues with their mortgage because of temporary distress, but continue to make payments on all credit obligations, • Distressed defaulter - Borrowers facing potential affordability issues that go delinquent on their mortgage along with other credit obligations, • No non-real estate trades – Borrowers who are delinquent on their mortgage, however they do not have any other non-mortgage trades to evaluate if they have strategically defaulted or are in distress, • Pay-downs – Borrowers who pay down their mortgage loan.
<ul><li>Rick Sharga, senior vice president of RealtyTrac, says there's $300 billion worth of adjustable mortgage expected to reset in the next 12 to 15 months. That will increase monthly mortgage payments by $1,000 on homes already underwater by 30 percent to 50 percent. He thinks its "tough to make an economic decision to stay in that situation.“ </li></ul><ul><li>He thinks banks should consider modifying the loans of underwater borrowers so that the payments are based on the home's current market value. Any difference should be set up as a balloon payment that can be partially earned out as the homeowner continues to make on time payments. That way both the borrower and lender share in potential losses in the future. That gives the borrower an incentive to stay in the home and pay the mortgage on time. </li></ul><ul><li>Strategic Default Gaining in Popularity Lita Epstein Posted Dec 27th 2010 Aol Real Estate at http://realestate.aol.com/blog/2010/12/27/strategic-default-gaining-in-popularity-banks-in-denial/ </li></ul>
<ul><li>1) A patented incentive, Responsible Homeowner Reward and administered by Loan Value Group LLC and named as one of the top 50 inventions of 2010, arranges for mortgages with rewards ranging in size from 10 percent of the unpaid balance to as much as 30 percent. The way the reward program works is that if your home is underwater, LVG works with the borrower to get details about the current value and the borrower's current financial situation. Using this information it then works with the bank to come up with a reward specific to the borrower's situation. The reward is then set aside in an account that the borrower can earn as he makes on time payments over a two to five year period depending on the terms. Then the reward sits in a reserve account and is given to the homeowner when he pays off the mortgage, sells the home or refinances the home. After the borrower earns his reward, he can lose it if he becomes delinquent more than once in any 12 month period. This gives the homeowner an incentive to pay on time even if underwater. </li></ul><ul><li>PLUS </li></ul><ul><ul><li>2) Include RHR or similar program with a shorter mortgage term reset to a 10, 15 or 20 yr amortization. This provides 2 benefits: </li></ul></ul><ul><ul><ul><li>Homeowner equity grows quicker </li></ul></ul></ul><ul><ul><ul><li>Servicer retains servicing, resets at premium rate for shorter term, making up incidental costs with YSP. </li></ul></ul></ul>
<ul><li>July 11, 2011 </li></ul><ul><li>The PMI Group, Inc. (NYSE: PMI) today announced that Homeowner Reward Co., a PMI subsidiary, is launching an innovative new pilot program intended to support sustainable homeownership in certain hard-hit real estate markets. Homeowner Reward Co. is working with Loan Value Group LLC to offer the RH Reward® to a group of homeowners whose mortgages are insured by PMI Mortgage Insurance Co. (PMI-MIC). </li></ul><ul><li>This unique program addresses a serious problem for many homeowners who find that factors outside their control - particularly lower home prices in their cities and neighborhoods - have left them owing more on their mortgages than their homes are currently worth. RH Reward seeks to address this problem through an incentive-based program that offers eligible homeowners a cash reward for staying current on their mortgages. There is no charge to borrowers to participate in the program. </li></ul><ul><li>"We are very pleased to have Homeowner Reward Co. offer this pilot rewards program as we continue to seek creative and effective loss mitigation strategies," said Chris Hovey, PMI-MIC's SVP of Servicing Operations and Loss Management. "PMI is committed to supporting sustainable homeownership in all the communities it serves. 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." </li></ul>