Q: I know you’ve written about people who walk away from their mortgages before. But what I’m not clear about is how that impacts your ability to get a new home loan? Couldn’t you just get financing for a new home before you walk away, and then walk away with a new mortgage and a new home? — N. Cochran, Sarasota, Fla.
A: Of course, as long as your mortgage payments and your credit are in decent standing, you’re eligible to apply for a new home loan. In fact, people do it all the time with second homes and investment properties.
But what you’re suggesting has its challenges.
First, if you apply for a new home loan, and have missed a current mortgage payment or two (as many strategic defaulters do), you’re going to have big problems. Lenders have really tightened credit and one of the biggest objections they have to granting new mortgage loans is to give them to borrowers who have a recent history of missing mortgage payments.
Short of declaring bankruptcy, missing a mortgage payment is one of the biggest mistakes associated with applying for a new mortgage loan.
Then there’s the limited credit pool for people who are “caught” walking away from their mortgages. Fannie Mae (Stock Quote: FNM), for example, has a new rule that blocks borrowers who walk away from their mortgages (but who still had the ability to pay) from getting a Fannie Mae-backed mortgage for seven years after the house enters into foreclosure.
Possibly worse, if you’re tied up in a Fannie Mae mortgage loan and you walk away from it — the old “leave the keys in the mailbox” approach — you’ll be walking away with a target on your back. Fannie also has announced plans to take legal action against borrowers who strategically default. Not all states allow mortgage lenders to go after strategic defaulters in so-called “deficiency judgments,” so you’ll have to ask your state’s consumer affairs office — or a good lawyer — what your options are in that case.