A financial company started by a former Wall Street banker has found itself on Time magazine’s list for being one of the best 50 inventions in 2010. Loan Value Group announced that its Responsible Homeowner Rewards program has been named fifth on the list of companies, and the only financial firm on the magazine’s annual list.
The RH Reward program offers cash incentives to homeowners at risk of foreclosure, and could dramatically reduce foreclosures by addressing the problem of strategic defaults, which accounts for as many as 30% of all foreclosures. There are an estimated 13 million U.S. homes that owe more on their mortgage than the property’s current value or nearly one in four homeowners.
Frank Pallotta, a former Goldman Sachs investment banker started the program with a partner after more than 20 years experience on Wall Street. The program directly addresses the problem of strategic defaults without the need for principal write-downs or government programs.
“Under LVG’s patented Responsible Homeowner Reward (RHR) program, banks promise to pay borrowers who continue to pay on time a lump sum — typically 10% of their original loan amount — when they sell or refinance their home,” Time wrote of the program. “Miss more than one payment and the reward disappears. It’s still early, but LVG says fewer than 10% of the borrowers in RHR have ended up defaulting, compared with a re-default rate of more than 20% for other loan-modification programs.”
“It’s gratifying to our whole team that Time’s editors have selected the Responsible Homeowner Reward program as one of the 50 most innovative products of 2010,” said Howard Hubler, Loan Value Group’s CEO and co-founder. “The RH Reward platform can quickly and efficiently align the interests of homeowners and lenders. Homeowners are incentivized to remain current on their mortgage payments, and their lenders reward them for doing it.”
Fewer than 5,000 homeowners have enrolled in the program, but company officials remain resolute that it could catch on with more lenders as the foreclosure crisis remains a massive problem for banks and mortgage lenders. The program helps both owner occupants and investors, who are suffering foreclosures at three times the rate of other mortgage holders.