This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

'Stategic' Defaulters May Face Heat

Stocks in this article: FNMA FMCC

NEW YORK ( TheStreet) -- The Inspector General of the Federal Housing Finance Agency believes Fannie Mae (FNMA) and Freddie Mac (FMCC) would benefit if they more aggressively pursued borrowers who default on their mortgages despite having an ability to pay.

"If the Enterprises can recover mortgage deficiencies, then they can mitigate some of their losses," the Office of Inspector General said in a report Tuesday. "For example, with respect to borrowers who may currently or in the future possess the ability to repay--such as, but not limited to, owners of investment properties or vacation homes who have defaulted for strategic reasons--pursuing deficiency collections and judgments may provide an added source of revenue for the Enterprises."

The pursuit against such borrowers "may deter others who are considering default despite being financially able to make their mortgage payments," the report added.

When borrowers default, the properties are foreclosed upon and sold. But the sale price might sometimes not be enough to make the lender financially whole. The shortage or loss is called a deficiency.

The lender could either absorb the loss or depending upon state laws on recourse, try and recover the deficiency from the borrower.

But the agencies efforts to recover these deficiencies have come up short, the report found. In 2011, the enterprises recovered only a small fraction of the deficiencies they pursued--approximately $4.7 million collected out of $2.1 billion pursued, according to the report.

Part of the problem was because the agencies lacked any guidelines on how to recover deficiencies. Fannie and Freddie differ on how they pursue deficiencies, with the former seemingly the more aggressive in their approach.

For example, Freddie Mac delegates the decision to its vendors, but Fannie Mae maintains oversight of its vendors' decision-making methodologies.

Also, Freddie Mac does not pursue deficiencies when third parties are the buyers at a foreclosure sale but Fannie Mae pursues deficiencies regardless of whether it or a third party is the purchaser at a foreclosure sale, the report found.

The Inspector General called upon the FHFA to enhance its oversight of the enterprises deficiency management process.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs