Fannie Mae is upping the bet on strategic default of home mortgages Wednesday, saying that borrowers who default despite having ability to pay in good faith won’t be eligible for a new Fannie Mae-backed mortgage for seven years from the date of foreclosure. Home foreclosures and strategic defaults are both increasing. There are a lot of offers online to help in strategic default. Last week the House passed the FHA Reform Act that ended up having a provision for penalizing strategic defaulters in the bill.
Source for this article: {Strategic default consequences
Fannie Mae, which owns or guarantees more than 50 percent of mortgages in the U.S., wants more severe strategic default consequences. It is now refusing to back new loans for walk-away borrowers for seven years after they abandon their homes. In a press release, Terence Edwards, executive vice president for credit portfolio management at Fannie Mae, said "Walking away from a mortgage is bad for borrowers and bad for communities, and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter time frame."
Strategic defaulters sued by Fannie Mae
In the press release, Fannie Mae, said it may also sue to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement that can be given next month, the company could be instructing its servicers to monitor delinquent loans facing foreclosure and make recommendations for strategic default cases that warrant the pursuit of deficiency judgments.
Strategic default definition
The strategic default issue is a thorny one because of the challenge to define what makes a default strategic. The Washington Independent reports that strategic defaulters aren’t breaching their contracts. Each mortgage contract defines what is going to happen if the borrowers do not pay: the bank evicts them and takes the home. It is very doubtful the government could stipulate that homeowners have to hand over the last of their savings to the bank before they can walk away, or that they have to be hand over a certain percentage of their annual income before they walk away. The money individuals have left might be used to move to an apartment, pay any of their medical bills or to purchase shoes for their kids.
Citations
Fannie Mae
fanniemae.com/newsreleases/2010/5071.jhtml
Washington Independent
washingtonindependent.com/87943/when-underwater-homeowners-walk-away
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