Thursday, June 24, 2010

Fannie Mae To Block Future Mortgages Of Homeowners Who Strategically Default

There was an article at The Huffington Post by Shahien Nasiripour titled "Taxpayer-Owned Fannie Mae Attacks Struggling Homeowners" that I thought was interesting. By the title of the article, one would assume that Fannie Mae was actively trying to cause some damage to innocent homeowners but here is how the article starts off:
Taxpayer-owned mortgage giant Fannie Mae is targeting families by going after struggling homeowners who strategically default on their mortgage, the firm announced Wednesday.

A default is considered strategic when homeowners have the capacity to pay, yet choose to walk away from their mortgage. The trigger, researchers say, is negative equity: When the value of a home is less than what the lender is owed on it, borrowers are more likely to strategically default.

About 11.3 million homeowners with a mortgage, or 24 percent, owe more on their mortgage than the home is worth, according to real estate research firm CoreLogic. Another 2.3 million have less than 5 percent equity in their homes. All told, about 29 percent of all homeowners with a mortgage are either underwater or very close to it. The firm estimates that the typical underwater homeowner won't return to positive equity until late 2015 or early 2016.

And Fannie Mae, an arm of the federal government and a big part of the Obama administration's housing policy, wants to make sure that if struggling families walk away, they suffer for it.

Homeowners who strategically default or did not work "in good faith" to avert foreclosure through other means will be ineligible for new Fannie Mae-backed mortgages for seven years.
The firm said it will also pursue homeowners in court, seeking so-called "deficiency judgments" to recoup outstanding debt by seizing borrowers' other assets. Thirty-nine states do not limit the ability of lenders to recover what they're owed.
If you ask me, that sounds fair.  Home purchases are a risk like any other investment, and while these people may have purchased their homes during the height of the housing bubble and now their properties are worth less then what they owe, I think that should a homeowner strategically default, Fannie Mae has every right to deem such homeowners as ineligible for future Fannie Mae-backed mortgages.

2 comments:

  1. There are many locations where lawyers are recommending people to just walk away and let the mortgage lender come after them. The reason being is that there are now so many defaults (majority because they are unable) that it can take the court years to finally get to your mortgage lenders case against you.

    There was a recent story in the Tampa/St. Petersburg area where one family walked away at the advice of a lawyer and haven't made one mortgage payment since mid 2008, almost 2 full years. They did this because they had troubles with their business and were strapped for cash. They then used their old mortgage payment to pay for advertisements and other business expenses which kept their business afloat and helped it turn a profit.

    While it will eventually come to hurt them, by ruining their credit score for one thing and possibly havibng to pay back some or all of the mortgage payments, for some situations this may not be a problem. Heck imagine the money you could save if you did not have to pay each month but still live in your fancy overpriced home?

    In my appropriately priced home in a cheaper real estate area I could easily save 12k a year so I can only imagine what some people in more metropolitan areas are saving.

    What makes me mad is when I read about these stories and these people claim they feel more free now they are no longer chained to a mortgage so they buy boats and cars and go on expensive vacations.

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  2. I see no problem with strategic defaults. I just didn't agree with the article and the impression that it gave - that Fannie Mae was unfairly targeting these people by not allowing them to get another Fannie Mae loan for several years...

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