Fannie Mae increases penalties for borrowers who walk away.
“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, 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.”
Now borrowers who walk away (also know as strategic default) but had the ability to pay or that didn’t 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.
Additionally, and this is a big one.
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.
Strategic default isn’t looking so strategic anymore. Fannie Mae is going to be checking the credit history of the borrowers, who’s mortgages they hold, who go through foreclosure to see if they’ve been keeping up with other payments. If they have, it is a good indication that the borrower is intentionally only missing their mortgage payments.
In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.
Troubled borrowers may be able to avoid foreclosure by working with their loan servicers on foreclosure alternatives such as a short sale, loan modification, or deed-in-lieu of foreclosure. Under the right circumstances borrowers who workout one of these options can be considered for a new mortgage loan in as little as two years. Plus they may avoid the possibility of a deficiency judgment.
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