Any homeowner considering a “strategic default” is wise to think twice. Well, make that three times, as Fannie Mae (Stock Quote: FNM) is cracking down harder on borrowers who walk away from their obligations.
Fannie, the government-backed company that bundles home loans and sells them to investors, announced it will take tougher action against borrowers who walk away from mortgages they can afford. These strategic defaulters will be barred from obtaining new mortgages for seven years, up from four.
Because Fannie dominates the mortgage-buying market, a would-be borrower could find it difficult or impossible to obtain a mortgage after ending up on Fannie’s black list.
“We’re taking these steps to highlight the importance of working with your servicer,” Terence Edwards, Fannie’s executive vice president for credit portfolio management, said in announcing the tougher policy. “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.”
No one knows just how many strategic defaults there are, but some experts think they account for about 12% of all defaults. Strategic defaults are most common among homeowners who owe more than their homes are worth, since they may feel it is pointless to keep up payments even if they can afford them. Nationwide, nearly 25% of homeowners with mortgages owe more than their properties are worth, providing a large pool of potential defaulters, and some experts say strategic defaults are becoming more socially acceptable.
Prior to 2008, a borrower who went through foreclosure on a loan backed by Fannie Mae had to wait five years before becoming eligible for a new one. In 2008, Fannie reduced the wait to four years.