New Foreclosure Fix: Pay to Stay

New York State Banking Superintendent Richard Neiman
New York State Banking Superintendent Richard Neiman

The idea kept coming up this week. Since Congress won't push mortgage lenders and servicers to reduce the principal overwhelmed borrowers owe, then why not find another way to give them financial relief: cash payments.

First a company called Loan Value Group rolled out a product it calls the "Responsible Homeowner Award," which makes incentive payments to deeply underwater borrowers who might otherwise walk away from their mortgages. (An estimated one in three borrowers now owe more than their homes are worth.) The payments are made by investors in mortgage-backed securities who stand to take serious losses as borrowers go into foreclosure. Homeowners who sign up would not be able to access the funds until the mortgages are paid off, or they've amassed enough equity to sell or refinance their homes. Loan Value Group expects that the promise of a tasty bonus at the end of the rainbow will be enough to entice some borrowers to stick it out and hope for a turnaround in home prices.

Then the idea got a plug from a big man in banking, New York State Banking Superintendent Richard Neiman (pictured), who wrote a letter to The New York Times supporting a similar concept.