According to a recent article and interview with Frank in the Wall Street Journal, the program is designed to allow the borrower to receive a cash reward if they agree to keep paying their mortgage. Factors like income, equity and geography (along with other risk factors) are used to determine the size of the incentive. The borrower can’t collect the reward until the mortgage is paid off, but the goal is to bring an option to the table that incentivizes the homeowner to stay. As Pallotta says in the WSJ article:
“…the incentive payments are designed to present enough of a ‘shock-and-awe number upfront’ to change the borrower’s psychology. Instead of thinking about how much debt they’re getting out of by walking away, maybe some borrowers will think about the cash bonus they’ll get if they stay current and are able to recover their equity if home prices stabilize and recover”
As pointed out in this article the housing crisis brings about a very complicated challenge for mortgage lenders and mortgage investors. As property values continue to fall, more and more homeowners will be faced with the decision to stay or walk away.
As I’ve expressed on the radio and on the blog plenty of times, I believe that simply walking away is not an option. No matter what you decide, your credit file and obligations do not “walk away” with you. At the very least you should attempt to short sale your property so that you can have some closure to the situation and come away with a much higher credit score than a foreclosure (provided you can stay current on your mortgage until the escrow closes with the new buyer).
The one thing that is encouraging about this article and LVG’s efforts is that there are some creative solutions coming out of the private sector that don’t involve government. We would have liked them to get here a lot sooner, but I’m happy to see them making the attempt to work things out with borrowers.
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Tania Fowler
Tony Wang
Frank Apisa
Natalie Holder-Winfield
john blumenthal
Kathy Riordan
Salon.com
Comments
Probably what this is about is some weirdness where they can't cut your payment but they can "give you a reward." Except it looks like a reverse balloon payment at the end, so I think that functionally it will be pretty useless.
As to whether to send jingle mail or not ... look, I'd be a lot more willing to get hissy about morality and responsibility if the banks and WallStreet had any. But they don't.
The real issue here is that the housing stock of the US is badly overpriced (even right now) and there is far too much of it (because it was so wildly overpriced by the crazy lending). There's no way out of this except further collapse of housing prices, until the aggregate real income of the population can actually carry the market.
Given the recession, and given the prospects that recession will end anytime soon ... get real. We're going to see continued losses in the housing market for as far as our crystal ball goes ... and the bottom won't happen until all the current excess on the market has turned over AND the economy starts really growing again.
Don't hold your breath.