RUMSON, N.J.--(BUSINESS WIRE)--With approximately 11 million homeowners underwater on their mortgages, the industry must begin to focus on the homeowners’ negative equity before the strategic default crisis worsens, says Frank Pallotta, EVP and a Managing Partner at Loan Value Group.
Pallotta, speaking today on a panel at the 2011 CoreLogic Risk Summit on Navigating Market Uncertainty Profitably, said, “The mortgage industry’s exclusive focus on delinquent borrowers ignores the growing tendency of current loans going delinquent as well as extremely high re-default rates. An incentive-based program designed to reward homeowners for staying current while addressing negative equity can positively impact a homeowner’s behavior and willingness to avoid default overall. But to achieve this, we need to be mindful of both the homeowner’s personal balance sheet as well as their income statement.”
Focusing on how the mortgage industry can use behavior and incentives instead of principal reduction to lower the risk of strategic default, Pallotta made the following points:
- Since the housing peak of 2006, millions of homes have gone from being a long-term investment into a significant liability for the homeowner.
- The risk of strategic default continues to remain high among those homeowners who have lost significant value in their homes. Additionally, negative equity remains the primary cause for default in the United States.
- After more than 8 months, LVG’s Responsible Homeowner Reward performance data continues to experience 50% lower default rates on both first and second lien product versus control groups.
- A program that aligns the interest of both homeowner and risk owner without modifying the mortgage exists today and can be executed quickly and in scale.
The CoreLogic Risk Summit conference, being held from July 31 to August 2 in Dana Point, CA, brings top mortgage industry professionals together to discuss ways to deal with industry change. Pallotta’s panel on Servicing and Strategic Default—Who’s Minding the Store? include, among others, Laurie Goodman, Senior Managing Director of Amherst Securities.
About Loan Value Group LLC
Founded in 2008, Loan Value Group LLC is a mortgage solutions provider of a large-scale, low-cost, turn-key platform that positively influences consumer behavior on behalf of residential mortgage owners and servicers. Based in Rumson, NJ, LVG provides owners of risk with a solution that directly addresses strategic default through the use of incentives. LVG is the exclusive provider of the Responsible Homeowner Reward ("RH Reward") program, named one of the “50 Best Inventions of 2010” by Time Magazine. Institutions can learn more by contacting Frank Pallotta or visiting http://www.loanvaluegroup.com/. Consumers can learn more by visiting http://www.rhreward.com/.