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Fannie Mae strikes back against strategic defaults
22-06-2010
Tagged Under : Defaults, Fannie Mae, Strategic Defaults
Federal home loan mortgage colossus Fannie Mae has announced that it is getting tired of strategic defaults – that’s a strategy lawyers deny having dreamed up to force banks into modification conferences with homeowners who have the capacity to pay, but a desire to pay less, perhaps because their mortgage is underwater.
Around 25% of American mortgagees are thought to owe more than their homes are worth, and it is unlikely that most will return to positive equity for at least five years. If they walk away or leave another kind of mess behind, then Fannie Mae’s new tougher stance could blacklist them for seven years. Other, heavier handed behavior than in the past, will include seeking deficiency judgments that will empower them to recover outstanding debt. From next month on the mortgage giant’s service providers will also be keeping a beadier eye on delinquent borrowers and more aggressively passing foreclosure recommendations up the line. As Fannie Mae’s Executive Vice President put it in a recent statement, “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.”
The House of Representatives approved legislation this month that effectively debarred strategic defaulters from future Federal Housing Association-backed mortgages on their homes. It’s not surprising that Fannie Mae has made the mind-shift that it has. Freddie Mae and Fannie Mac together underwrite something like three out of every four American mortgages. They control almost $5.5 trillion home mortgages, and their efforts to block coercive mediation are understandable.
Their potential to block the large number of emerging strategic defaulters also has potentially devastating impacts on the property market recovery that America so desperately needs. To date, most households have been able to recover from a foreclosure within two years – adding a further five raises the bar considerably. Over a million American borrowers played the strategic default game last year – that’s twice the 2008 figure, and four times more than the number recorded in 2007.
This puts the evolving HAMP program under further pressure. The air in the American property bubble came from poorly assessed credit risks. Trial mortgages are radically down following the implementation of more professional assessments. Less re-mortgages mean more desperate borrowers. More desperate borrowers inevitably mean more strategic and genuine defaults.
What can this mean for the foreclosure debacle in the future? Manifestly, all future mortgage undertakings must be underpinned by prudent and not risky lending. Equally manifestly, the twin institutions of Fannie Mae and Freddy Mac (and their tax paying backers) ought not to be the fall guys in the process.
Maybe its time to refuse dishonest people mortgages? Read more at www.foreclosuredatabank.com.
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- Fannie HomePath® Deals Get Sweeter
- The time lags in the property market crisis
- Strategic Default Driven by Future Home Prices, Default Costs
- Was HAMP right to interfere?
- HAMP Slows, But Second Mortgage Modifications Get Underway
