Most, if not all, of my clients don’t have the money to pay for their mortgages so they aren’t doing a “strategic default”. That would involve “strategery” – OK, see the SNL skit on Youtube because it’s pretty funny. Read the story and let me know what you think.
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Fannie Mae outlined an initiative last week intended to punish those who walk away from homes, but are still able to pay (strategic default). Fannie said those borrowers would not be eligible for a Fannie-sponsored loan for seven years, rather than the three-year hiatus required for those who were foreclosed upon.
However, there’s been ample speculation that its crackdown will be unsuccessful. First because it’s hard to identify such borrowers definitively. Furthermore, their credit scores may take seven years to improve enough to be eligible for a new loan anyway. SNL Financial’s Zach Fox points out that such borrowers often walk away because they consider it financially responsible thing to do. Putting in punishments for walking away — rather than incentives to stay and pay — may be counterproductive.
Fannie Mae’s decision to begin punishing people who walk away from their unpaid mortgages could prove difficult to sell to the public and might be impossible to execute, housing and lending experts said Thursday.
It was unclear, the experts said, why Fannie Mae was threatening delinquent owners and what it hoped to achieve. The new direction seems to run counter to the Obama administration’s efforts to reinvigorate the housing market. And there were basic questions about how Fannie would be able to distinguish between those homeowners who defaulted intentionally and the unfortunate ones who had no choice.
“How are they going to do this, and for what result?” asked Grant Stern, president of the Morningside Mortgage Corporation on Bay Harbor Islands, Fla. “So they can find the people who have a little money left after their house crashed and take it away from them?”
A Fannie Mae spokeswoman said that the goal of the new punitive policies was to force defaulting homeowners to work with their servicers to surrender their houses through either a lender-approved short sale or by formally giving up the deed.
“We really want to encourage borrowers to pursue alternatives to foreclosure,” said the spokeswoman, Janis Smith.
Fannie’s newly aggressive stance comes as the debate is heating up over how much, if at all, borrowers should be held liable for their foreclosures.
Republicans recently added a measure to a Federal Housing Administration financing bill in the House of Representatives that would forbid strategic defaulters from getting an F.H.A.-insured loan.
The California Legislature is debating a proposed law that goes in the other direction, shielding many more delinquent borrowers from debt collectors. Fannie and its sister company, Freddie Mac, control 30 million mortgages, providing liquidity to the housing market. They have been under government conservatorship since September 2008; the ultimate cost of the rescue to taxpayers might hit $400 billion.
Chris Dickerson of the Federal Housing Finance Agency, which regulates Fannie, said, “We support Fannie Mae taking a policy position that discourages borrowers who can afford to pay their mortgage from walking away.”
Read more here http://www.nytimes.com/2010/06/25/business/25fannie.html
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