Strategic defaults have been steadily increasing in the residential housing market, as the stigma from having a foreclosure is lessened by the tidal wave of foreclosures across the country. These intentional defaults became such a problem that mortgage giant Fannie Mae now says that homeowners who choose to do a strategic default will be barred from getting another Fannie Mae mortgage for seven years.
A strategic default is when the homeowner can afford to keep making the mortgage payments, but chooses to default anyway because the house is now worth less than the mortgage balance.
In a recent press release, Fannie Mae warns: “Defaulting borrowers who walk away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure.”
In addition, the press release said: “Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments.” (California bars deficiency judgments after foreclosure if the mortgage was used to purchase the house. All other states allow them.)
With Fannie Mae’s 95% market share for all new mortgages, this is a serious threat to homeowners who decide to go this route.
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That is great but fannie Mae was a huge part of why the housing market took a dive. So why should they penalize home owners for some of the issues they have caused.
I just did a Blog on this very topic a few days ago. I think the media, in a way, has made Strategic Defaults the cup du jour and home owners need to understand what theyre getting into before making a decision that could effect them for more years than they care to think about. I truly hope that the media spends just as much time on the pain that a strategic default is going to cause as they have in coming up with cool monikers like “Jingle Mail.” When in doubt seek assistance from a professional and when it comes to deciding between your options, when Strategic Default is on the table, that assistance is paramount.
I’m sure there are many reasons why a homeowner would take this route. However, if Fannie Mae does not put strict rules and regulations in place now to discourage intentional defaults they are in danger of following the fate of their smaller counterparts by having to be taken over by the government or worse go out of business all together.
There has been an increase in unemployment, which did cause many people to develop financial trouble, but I have to agree that the truth is, most people just didn’t want to pay twice what all their new neighbors are paying for their loan.
Imagine living in a house where all your neighbors are paying the same amount as you and they all default on their loan and new people buy up those houses at half the loan amount. Now you are left sitting there with a bulky loan payment while all your neighbors have it twice as easy.
I think that’s how the majority of homeowners saw the situation. Of course they probably figured if they let the house go, their credit would be better by the time the market would bounce back. However, I guess as it turns out, you don’t want to get Fannie Mae mad because there will be justice.