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» VISIT US ONLINE @ DSNEWS.COM JUDICIAL REVIEW BEST PRACTICES BEST PRACTICES PROGRAMMED FOR PERFORMANCE By Sandra Lane INDUSTRY INSIGHT M Who Doesn't Love Incentives? One of the more innovative initiatives in the marketplace today is the Responsible Homeowner Reward® Program (RH Reward), offered by Loan Value Group, LLC (LVG), in Rumson, New Jersey. In fact, Time magazine named this program one of the Best Inventions of 2010. RH Reward is typically a cash incentive paid by a mortgage lender, insurer, or investor to preselected homeowners for making timely mortgage payments. Participation in the program is voluntary, and there is no cost to the homeowner. LVG administers the program on behalf of the company offering the reward. "This is not a loan modification program," explained Frank T. Pallotta, managing partner of LVG. "It's more about performance modification using behavioral science." Partners at LVG created the reward program in 2008 based on what they learned from past experiences. They felt if consumers were offered an incentive, they would change their payment behavior. Eligibility for the program is determined by the risk owner. Since the adoption of RH Reward, Pallotta says lenders offering the program find less than 10 percent of their borrowers re-defaulted compared with a re-default rate of more than 50 percent for borrowers offered other modification alternatives. The amount of POINT— COUNTERPOINT ortgage and default servicing professionals are on a never-ending search for better solutions to the problems associated with the nature of the business: how to communicate with—or even find—delinquent homeowners, how to encourage borrowers to stay current on their payments, and how to avoid this dilemma in the first place. As a result, many creative programs have been launched to benefit both lenders and borrowers. the RH Reward typically ranges from 2 to 10 percent of the remaining balance of the loan, usually at the lower end. The reward is paid when a homeowner pays off, refinances, or modifies the present loan. It can also be administered on a second lien to help pay down or pay off the subordinate loan. Pallotta says the amount of the reward doesn't matter as long as consumers realize they receive a benefit and have a hand in managing their own financial situation. "Consumers seem to realize we are doing something different other than traditional mortgage servicing," he explained. "We are not collecting a debt. We are engaging them in an education and awareness campaign, and we are there to help them." Communication between banks and consumers is essential, according to Pallotta, and he says LVG's program has improved this process. "There are good programs out there to help consumers, such as HARP [Home Affordable Refinance Program], but consumers are unaware of them," he said. Pallotta explained the people who need the most help receive the least amount of it. "Less than 10 percent of HARP [refinances] done today are above a 105 percent loanto-value ratio, indicating that not many high-risk homeowners are getting help," he said. "A homeowner can have any LTV ratio and still get HARP refinancing, but it's not playing out that way." 63

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