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Yesterday Fannie Mae announced a tough new policy banning borrowers who walk away from their mortgage from getting a new loan through the GSE for seven years. 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.
"We're taking these steps to highlight the importance of working with your servicer," said Terence Edwards, Fannie's 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."
The policy ignited a firestorm of debate across the nation as defenders and opponents of borrowers who abandon their homes even though they have the capacity to pay took to blogs and news outlets.
"Only in America! We should rename Fannie and Freddie "Stalin Mae" and "Lenin Mac," screamed a reader of the Wall Street Journal today. "If folks nationally only knew how many real homes are being purposely defaulted upon in the over $500k price range, it would turn their stomachs. Current estimates show that the strategic default rate is actually HIGHER as a percentage in homes with high credit scores and no loss of income. The higher the income, the greater the likelihood of default! Of course, these people know full well that it is the most intelligent business decision of their lives to walk away from these underwater albatrosses."
Wrote another: "Will Fannie even be around in 7 years? As it stands now my house is 180k underwater, on a 360k mortgage with no second on it, is too far underwater to qualify for any help…Does Fannie even understand why strategic defaults make more sense then paying for a massively underwater home? Stupid threats are not going to work."
In the more liberal Huffington Post, reader reaction has been equally angry.
"I haven't heard about the administration asking these semi-govt. CEOs to give back their massive bonuses. 'Making (homeowners) suffer' is one step too far, businesses do this all the time," a reader wrote today.
Surprisingly, real estate professionals seem split over the new policy. In a thread on the popular Active Rain site titled "Fannie is Bringing Down the Hammer," agents who work with distressed owners as well as bargain-hunting buyers had different opinions.
"I won't be the one to judge but in working short sales I can tell you that people in distress don't think clearly about the future. Saying to yourself, I can't buy a home with a mortgage for seven years is a rational thought, and distress is not rational," said an Oklahoma Realtor.
Another took a different tack. "Can you imagine the impact on a depressed housing industry if the government begins to lock more and more potential buyers out of the market place? These strategic default owners are normally in fairly good financial condition and trying to stop the bloodletting."
A New Hampshire Realtor summed up her feelings. "Can't say as I blame them (Fannie Mae). They are forgiving, sometimes huge amounts of money. Is it too much to ask that the person who is basically asking to get out of their agreement with the bank not be able to get a mortgage again for several years? They may not like renting, but at least they are not on the street. I do feel sorry for those that were taken by less than competent or honest loan persons. But there are also those that had nice little mortgages before the boom, but decided to later refinance and pull money out of their homes for an SUV, RV or other item. In reality, getting their profit up front. Now they have the RV but are upside down."
Fannie Mae and her sister company, Freddie Mac, currently back about 95 percent of new mortgages. No word today on whether Freddie plans to follow suit on Fannie's strategic default policy.
From
Real Estate Economy Watch
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