In the past six months, we have seen the expansion of Making Home Affordable,
in particular in the refinance (HARP) and the loan modification (HAMP)
areas. We have also seen the Office of the Comptroller of Currency enter into a
foreclosure review agreement with the major lenders and, most recently, seen the announcement
of a foreclosure fraud settlement with the five major banks.
With three vastly different programs in place, some homeowners are likely
wondering, "Can I use these together?" The simple answer is
that, yes, there is nothing preventing a home owner from receiving assistance
through multiple programs or settlements at the same time.
In fact, the foreclosure fraud settlement seems to be designed to provide
added incentive for lenders to provide principal reductions via
HAMP. The latest changes to HAMP have tripled the amount of money that lenders
receive when they forgive underwater principal balances. The five lenders
that are part of the foreclosure fraud settlement also participate in
HAMP. Simply by meeting their obligations under the foreclosure fraud
settlement, those five lenders will receive roughly 63 cents on the dollar
for every dollar of principal balance reduction.
Yes, this means that banks complying with a settlement that is ostensibly
designed to punish the banks will get a monetary benefit for complying
with the settlement. Several observers have already pointed this out,
so it doesn't really bear lengthy repettion here. While I agree that
the combination of settlement and HAMP results in a windfall for the punished
banks, I also see a great opportunity for some homeowners to obtain relief.
As a "glass is half-full" kind of person, I'll take that
Right now is possibly one of the best times to apply for a HAMP
loan modification if your servicer is JP Morgan Chase, Bank of America, Wells Fargo, Ally/GMAC,
or Citigroup. On the one hand, allowing these lenders to be reimbursed
for principal reductions that they are legally required to make is ethically
problematic. However, on the other hand, these lenders are the five most
likely to issue principal reductions. My practical advice to homeowners
is to ignore the benefit to the servicer and pay attention to the opportunity
to reduce the princpal balance of an underwater mortgage.
Something else to consider is the OCC foreclosure review process. According to
CNN Money, only 90,000 homeowners have signed up so far. However, it is also possible
to obtain relief through the foreclosure review process and from the foreclosure
fraud settlement. This is not as obvious of a benefit as the HAMP -- settlement
bait and switch described above, but that is largely because nobody knows
how the foreclosure review process will play out. With no results as of
yet, we simply don't know what, if any, relief former homeowners will
receive from it. We also don't have a specific figure regarding how
much money former homeowners willl receive from the foreclosure fraud
settlement, although most reports indicate that it will be about $2,000.
At the end of the day, the general public is still seeking meaningful relief
from the housing crisis. With Fannie Mae and Freddie Mac uninvolved in
the new foreclosure fraud settlement, many Americans are simply not covered.
In the meantime, those who are should take the steps necessary to secure
as much relief as possible.