Everyone Should Love this Mortgage Bonus

Scott Francis
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According to Diana Olick of CNBC, PMI Mortgage Insurance recently signed on to the “Responsible Homeowner Reward” program – a program that reward homeowners for paying their mortgages every month, on time, for the next 5 years. It sounds like a pretty innovative way to encourage homeowners who are underwater to stay in their house and keep paying their mortgage (something they likely want to do anyway).  These underwater mortgages are particularly concerning, because a homeowner might conclude that it makes more financial sense to hand over the collateral (the house) to the Bank and default on the mortgage. But Diana Olick comes down hard on this idea:
But current borrowers are current—plain and simple. Why do they need a bonus for fulfilling their financial obligations?? Credit card companies charge you a heaping fee the minute you’re a minute overdue, but now mortgage lenders and even mortgage insurers are so afraid of their customers, or have so little faith in them, that they’re paying them to pay up? They are literally willing to pay insurance on previously signed legal contracts?
Maybe Diana isn’t aware, but credit card companies pay a “bonus” for paying them off on time as well.  The bonus is in the form of frequent flier miles, award points, savings contributions, or cash back. It is interesting that so many people find it immoral to renegotiate a contract, if that contract involves a single individual or family, and a house.  But businesses renegotiate contracts all the time!  They renegotiate debt servicing arrangements, payment terms, maturity of the debt obligations, etc.  And sometimes it makes sense to proactively offer to renegotiate terms with your customers, rather than to wait for them to make a drastic move. An intelligent incentive to keep current on mortgage payments sounds sensible to me – I’d like to see more creative (and relatively inexpensive) ideas like this, not less.

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