| Strategic Mortgage Default Has A Price |
| Articles - Mortgage |
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Strategic defaulters who walk away from their mortgage may be refused a new loan from Fannie Mae for 7 years.
Strategic defaulters who walk away from their mortgage may be refused a new loan from Fannie Mae for 7 years. In an effort to mitigate losses incurred from borrowers walking away from their mortgage because they owe more than the home value, Fannie Mae said that those who defaulted had the capacity to pay the mortgage or did not attempt a foreclosure alternative program would be ineligible for a new mortgage 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 is one of the main sources of mortgage financing for U.S. homeowners. They continue to face big losses from defaults and foreclosures. Their plan is to prevent some losses by locking out "strategic defaulters" from getting home financing 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. While some advocates claim this action is necessary to discourage the growth of strategic mortgage defaults, there are others who say the move by Fannie Mae has the potential of derailing the recovery of the housing market. Their argument is that strategic defaulters walk away from a mortgage because of negative equity, but they still have jobs and the required income to qualify for buying another home. Locking out these potential home buyers could essentially reduce the demand for homes, which affects sales and eventually home values. Will this strategy of trying to lock out strategic defaulters actually work? Not unless other government sources of home financing, such as, Freddie Mac and FHA adopt similar default policies. A borrower's motivation for a strategic default may depend on how deep they are underwater. Having a mortgage that's twice the value of a home could be somewhat motivating. The prospect of being stuck with a loser investment that may not reach a break-even point for 7 years or more may be enough to take walk. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Written by R. Smith: Home Loan, Refinance Mortgage Quotes |