Should underwater homeowners receive a financial reward for resisting the urge to walk away from their mortgage loans? A New Jersey company seems to think they should.
The trade publication Collections & Credit Risk recently covered a new product offered by Rumson, N.J.-based Loan Value Group. RH Rewards provides a financial bonus to homeowners who owe more on their mortgage loans than what their residences are worth but still continue to make their mortgage payments on time.
As the story says, officials from Loan Value Group see this not as a bribe, but as a source of hope for homeowners who suddently their residences as bad investments.
There are critics, of course. They say that homeowners shouldn’t be rewarded for doing the right thing. And the right thing, according to these critics, is for homeowners to make their mortgage payments if they can afford to do so. Strategic default, they argue, is an unethical move.
Problem is, there are a growing number of homeowners out there who, taking away the moral implications, would probably be helping their financial situations by walking away from their mortgage loans. First American CoreLogic regularly studies the number of homeowners who owe more on their loans than what their residences are worth. That number lately has tended to hover just under 25 percent.
Does it make financial sense to continue paying off a $700,000 mortgage loan on a home that is now worth $400,000? That’s the quandry that is bedeviling far too many homeowners today.
The RH Rewards program isn’t designed to cover the financial loss that underwater homeowners are facing. But it does make it a bit easier to accept staying in a home whose value has crashed. Underwater homeowners who participate in the program receive a small financial award every time they make a mortgage payment on time. Generally, this award can add up to a total of no more than $20,000.
When homeowners pay off their loans — including when they sell or refinance — they receive their reward.
It’s too early to tell if this program will take off. But if such programs offer hope to frustrated homeowners, why shouldn’t more mortgage lenders add it to their offerings?
— Dan Rafter