Seeking Absolution in the Marketplace of Loans?
Economists, financiers, bankers, and many more people who aren't directly connected to the world of finance and banking understand that the financial meltdown was caused by many different factors. But, undoubtedly, Howard Hubler made it worse at Morgan Stanley when what appears to be an unshakable institution shook at its very foundations as $9 billion went up in smokes because of bad mortgages.
Now, Hubler's company, called the Loan Value Group, has launched a program that he believes could dramatically reduce foreclosures.
In the market of loans, strategic default — defined as a case in which the borrower has the money to pay the loan but doesn't do so — constitute as much as 30 percent of all home-loan defaults. This happens because borrowers owe more than their home is worth.
Under LVG's Responsible Homeowner Reward program, banks promise to pay borrowers who continue to pay on time a lump sum when they sell or refinance their home.
Miss more than one payment and the reward disappears. It's another carrot-and-sticks approach in regulating borrower behavior, except that in this case, it's more like the vanishing-carrot-and-sticks deal. So, apparently, transactions that use the here-one-minute, gone-the-next model still prevails!
LVG remains dangerously optimistic when it claims that fewer than 10 percent of the borrowers in RHR have ended up defaulting, compared with a redefault rate that exceeds 20 percent for other loan-modification programs. The problem is, to date, fewer than 5,000 people have enrolled in the RHR program, which gives very little meaning to the very low 10 percent cited by LVG as a sign that the tide is turning.