Can I Use Making Home Affordable, The Foreclosure Settlement, and The OCC Settlement Together?
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 over nothing.
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.