Responsible Homeowner Reward - Veterans Program
Banks and Servicers Can Reduce the Risk of Loss in their VA Servicing Portfolios that Stem from a Shortfall in VA Insurance with a New Turn-Key Incentive Program
Target Client: VA Servicers
LVG Product: Responsible Homeowner Reward - RH Reward for VA loans
Many large GNMA Servicers face significant risk exposure on underwater VA loans due to the shortfall in VA insurance. A number of US Financial Institutions and Servicers have chosen to implement the Responsible Homeowner Reward as a proactive loss prevention strategy. The program has achieved 50% lower delinquency rates on the highest-risk borrower segments, resulting in significantly higher net profitability and servicing efficiencies. Moreover, the Program gives servicers the opportunity to initiate and maintain a positive connection with the courageous men and women who serve our country.
Business Needs
GNMA servicers are beginning to recognize that underwater VA loans carry additional risk exposure, as the VA guarantee may be insufficient to cover the full loss in most default scenarios. Faced with higher delinquency rates on underwater loans and an uncertain housing market in the near term, these institutions need a way to proactively control this credit exposure.
Traditional loss mitigation strategies such as loan modifications are not applicable in this case, primarily because the loans are owned by Ginnie Mae securitization trusts. Moreover, the servicer does not have the authority to modify these loans until they become delinquent or face "imminent default" – which can often be too late.
Because most loss mitigation resources are devoted to addressing active delinquencies, the budget for proactive risk reduction strategies is often limited. Therefore, while the VA shortfall risk is understood to be real and significant, any solution must be low cost. Many large banks also face significant internal operational hurdles, making it difficult to launch new programs quickly and in scale.
VA Servicers need a way to reduce the rate of default at a low cost, without relying on traditional loss mitigation methodologies, and without burdening their existing servicing infrastructure.
Solution
To meet these requirements, LVG has designed a proactive, turn-key, strategy to reduce default rates and ultimate risk of loss on a select group of high risk VA loans.
Based on prior performance results in using the RH Reward program, LVG understands that it is possible to reduce delinquency rates on high risk underwater loans by up to 50% without modifying the loan, through the use of a structured incentive solution. Additionally, the program can be offered at a variable cost, with no additional operations or technology integration with minimal internal resource requirements.
Finally the program’s private label structure and simplicity allows for speed-to-market and launch that will take weeks, not months.
Benefits
With the launch of the RH Reward program, servicers can positively influence borrower behavior, reduce risk overall, and maintain a positive connection with homeowners. To date, financial institutions have seen:
- More than a 50% reduction in overall delinquency rates on high-risk loans enrolled in RH Reward vs. similar “Control Group” loans.
- Up to 40% increase in resolution rates with nearly 75% shorter resolution timelines.
- Program conversion rates exceeding 90%.
- A lift in verified contact data (new phone, email, address) for over 40% of the target population.
- Minimal operational and technology resource requirement (a truly turnkey program).
- Positive GAAP net income impact net of all program costs.
