Fannie Mae Locks Out Mortgage Defaulters

Thursday, July 29th, 2010 | Uncategorized

Fannie Mae Locks Out Mortgage Defaulters.
One more reason I oppose strategic default by owners who can pay their mortgages.
Borrowers who walk away from their mortgage may be locked out by Fannie Mae for 7 years.
In order to cut losses from borrowers who strategically default on their mortgage because they owe more than the home is worth, Fannie Mae stated that borrowers who had the capacity to make loan payments, but walked away from their mortgage, would be ineligible for new home financing for a period of 7 years.
High loan to value mortgages and falling home values put many homeowners in a situation where they are “underwater”, owing far more than their home is worth. Walking away from the mortgage creates ethical as well as credit issues, but it has become more of an acceptable choice, even with homeowners who can still afford to make their mortgage payments.
Fannie Mae, one of the primary sources of home financing in the U.S., continues to face major losses from mortgage defaults and foreclosures. Their plan is to try and prevent more losses by threatening to lock out “strategic defaulters” from financing another home for 7 years after a foreclosure. Borrowers who show extenuating circumstances or attempts to prevent the foreclosure, such as a loan modification, may have the waiting period reduced to 3 years.
Some proponents say this action is necessary to discourage strategic mortgage defaults, and there are others who say Fannie Mae could derail the recovery of the housing market. They argue that strategic defaulters walk away from a mortgage because of negative equity, but they still have jobs and the income for buying another home. Locking out these potential home buyers could lower the demand for homes.
Will Fannie Mae’s strategy of trying to lock out borrowers who strategically default on their mortgage really work? Not unless other government sources of home financing, such as, Freddie Mac and FHA adopt similar restrictive mortgage default policies. Also, adding a foreclosure to a credit report typically precludes a borrower from qualifying for a mortgage for at least two years, which may be a sufficient deterrent for borrowers who still have good credit.
The motivation for a strategic mortgage default may depend on how deep a borrower is underwater on their home. Having a mortgage that’s twice as much as the value of a home could be somewhat discouraging. The prospect of being stuck with a losing investment that may not reach a break-even point for 10 years or more may be enough motivation to take walk.

http://www.media-cn.com/fannie-mae-locks-out-mortgage-defaulters.html

1 Comment to Fannie Mae Locks Out Mortgage Defaulters

JB
August 18, 2010

Leave it to the government to make it hard as possible for people.

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