Fannie Mae Cracking Down On Strategic Defaults

There is little argument that the real estate market has taken a serious blow in the last few years and as a result foreclosures are at an all time high. Unfortunately, there are more than 5 million homeowners who are underwater or in default and now lending giant Fannie Mae has announced they are getting tough on homeowners who are planning a strategic default.

At the end of June, Fannie announced that it would no longer look the other way from borrowers who walk on their mortgage. The penalty? A seven year ban from the GSE (Government Sponsored Enterprise) program. Additionally, Fannie plans to take legal action against borrowers who strategically default on their loans.

This annoucment is a bold one by Fannie Mae, but the reality is that with unemployment still at 9.5% or higher in some regions and a sluggish economy is having many home owners feel that they have no choice but to walk away from mortgages that they have no hope of catching up on.

 “We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, Fannie’s executive vice  president for credit portfolio management. “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 period of time.”

Here’s how Fannie breaks it out:

• Deed-in-Lieu of Foreclosure> -- reduced from four years to two years with 20% down; four years with 10%.
• Pre Foreclosure Sale -- two years with 20% down; four years with 10%.
• Short Sale-- will be the same as pre-foreclosure sale
• Strategic Default (Walk Away) -- seven years.

Many experts are fearful that this move will contribute to the already dismally depressed home market by cutting out the government backed borrowers. Fannie Mae and Freddie Mac, fund more than 90% of new mortgages and so far, Freddie has not followed suit.

 

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Posted via email from Westlake Village