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Private Fund Invents Program Paying Underwater Homeowners to Stay Put

February 15, 2010

The New York Times recently ran a story on an approach to negative equity that intrigued our Redlands loan modification attorneys. According to a Feb. 8 post on the Bucks Blog, a private equity company has begun offering lenders and mortgage servicers a program intended to stop "strategic defaults." That term refers to the practice of homeowners walking away from their mortgages when they owe substantially more than the homes are worth. The Loan Value Group offers lenders a chance to hold on to these borrowers by essentially paying the borrowers to stay put. Specifically, the group offers to pay back some of the negative equity when the mortgage is paid off, as an incentive for homeowners to hold on.

The company works only with homeowners who can afford their mortgages, but who are at risk for strategic default because it makes more financial sense to stop paying. It works with client banks and mortgage servicers to identify at-risk borrowers, using a combination of location, income and negative equity information. Then, targeted borrowers are offered money payable when they fulfill the terms of their loans, whether that means paying off the mortgage, refinancing or a short sale. The payment is calculated to be just enough to keep them in their homes, but not enough to make up all of their negative equity. The Times said this typically works out to 8 to 10 percent of the loan's value, but could be as much as 20 percent in boom-and-bust areas. The lender avoids taking a loss in a foreclosure and the borrower stays in the home.

As Costa Mesa loan modification lawyers, we're interested in anything that seems to offer a solution that keeps homeowners in their homes and doesn't meet strong opposition from banks. We believe bankers' reluctance to lose profit (real or imaginary) is the primary problem with loan modification programs, as well as the reason they opposed mortgage cramdowns in bankruptcy. This program may meet those conditions. However, we'd be interested in knowing more about the Loan Value Group's own business model. All businesses exist to make money, and it's important to evaluate whether a business makes money to your detriment before signing on. And borrowers participating should realize that the offer won't necessarily solve their problems. Before signing on, they should do the math and make sure an eventual reward makes it worthwhile to stay on.

Of course, most borrowers have non-financial reasons to stay in their homes, such as practical concerns, desire to hold on to equity and pride in homeownership. Howard Law PC has been helping these homeowners hold on, whenever practical, throughout the housing crisis. We have an active practice helping clients get and negotiate loan modifications. Our Oceanside loan modification attorneys have had substantial success with this, even when our clients haven't been able to get results on their own. We believe lenders and loan servicers change their tunes when we call because they know we understand our clients' rights and will sue if those rights are violated. We prefer to resolve issues out of court, but we will absolutely sue if necessary to enforce your rights and stop an unfair foreclosure.

Howard Law offers free, confidential consultations, so you risk nothing by speaking to us about your rights and your case. To set up a consultation, please contact us through the Internet or call toll-free at 1-800-872-5925 today.