Fannie Mae upped the ante on strategic default of home mortgages Wednesday, saying that borrowers who default in spite of having ability to pay or don’t seek alternatives 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. Numerous offers are proliferating online to help in strategic defaults. Last week the House passed the FHA Reform Act with a provision for penalizing strategic defaulters within the bill.
Source for this article: {Consequences of strategic default
Fannie Mae, which guarantees more than 50 percent of mortgages in the U.S., wants a lot more severe strategic default consequences. It is now refusing to back all of the 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 explained to all that 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 next month, the business 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 appears to be a difficult one because of the challenge to define what makes a default strategic. The Washington Independent reports that strategic defaulters aren’t actually breaching their contracts. Each mortgage contract defines what happens if the borrowers don’t pay: the bank evicts them and takes the home. It is 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 that they might be made to hand over a certain percentage of their annual income before they get to walk away. The money individuals have left might be used to move to a new apartment or something, pay medical bills or to buy 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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