They're resorting to bribery.
Lenders and politicians won't call it that, but that's what it is.
A raft of recent programs, both private and governmental, essentially hand cash to homeowners who (A) make mortgage payments on time and (B) refrain from vandalizing their homes if they fall into foreclosure.
It's like paying a person to brush his teeth or not belch at the banquet table. Where appeals to good manners fail, cash apparently works wonders.
Exhibit One: CitiMortgage's Foreclosures Alternatives Program. The lender announced last week it will hand defaulting homeowners at least $1,000 to relocate and even finance homeowners association dues for six months. Florida is among the handful of states targeted by the pilot program.
But Citi expects something in return. As the bank press release delicately put it: "As part of the agreement, borrowers must maintain the property in its current condition."
Talk about soft pedaling. Here's the backstory: Many Tampa Bay homeowners have hollowed out their foreclosure homes in a spurt of misguided revenge against lenders. Sometimes pure destruction is the goal. Sometimes they hawk the home's contents.
In one legendary case still murmured about in Clearwater's Island Estates neighborhood, a real estate speculator held a parking lot rummage sale of fixtures stripped from her soon-to-be-repossessed condo. Items for sale included sinks literally yanked from the wall with plaster still clinging to the pipes.
Fannie Mae, the government mortgage company, approved a similar antivandalism measure in November. Its "Deed-for-Lease" program hands borrowers a 12-month lease on their foreclosure homes as long as they "maintained the property." For examples of people who don't maintain their property, consult online listings. You'll find plenty of dishwashers extracted from underwater homes.
Other antiforeclosure bribes are more subtle — and even target people wealthy enough to afford their house payments.
Loan Value Group L.L.C., a New Jersey company, offers a cash-heavy solution to the problem of strategic defaulters. Those are borrowers who intentionally drift into foreclosure rather than continue making payments on a house whose value has collapsed.
Some of them turn around and buy a similar house for hundreds of thousands of dollar less than the house they just abandoned. Loan Value Group entices those optional defaulters to stay with pre-emptive cash.
"Our program will provide a tangible, significant reward to the borrower who fulfills his obligation," company vice president Bill Garavente told the Times.
The federal government offers similar rewards through Making Home Affordable. That's the mortgage modification program that subsidizes banks, enabling them to limit distressed homeowners' mortgage payments to 31 percent of monthly income.
For each year the homeowner makes his newly lowered payments, he accumulates discounts that come off the principal at the end of the loan's life. It will cost the taxpayer billions of dollars, but it makes sense: Redefault rates after refinancing/modification run as high as 60 percent.
I'm sure the people who run these programs prefer the word "incentives" to "bribes." But "bribe" gets to the point faster. This is money they shouldn't have to spend were the human animal a nobler beast.