Don’t Walk Away…or you will pay

A new ruling will lock would-be homeowners out of new mortgages–and keep them in rental housing–for years to come. June 2010, mortgage giant Fannie Mae enacted a new measure, making homeowners who intentionally default on their mortgages ineligible for a new Fannie Mae-backed loan for 7 years after they abandon their property.

This ruling could keep tens of thousands of former homeowners in the rental market for the next decade. Since Freddie Mae is the nation’s largest mortgage backer, would-be homebuyers who default now could face great difficulty obtaining financing in the future.

Fannie Mae’s executive vice president, Terence Edwards, said that the new lockout policy “is meant to deter the disturbing trend toward strategic defaulting,” which is “bad for borrowers and bad for communities.”  (see our BLOG on strategic defaults) Fannie Mae intends the penalty to discourage borrowers from walking away from their homes and mortgages. Those who stay in their homes and cooperate with mortgage companies could be considered for loan modifications, short sales, or other alternatives to foreclosure.

Borrowers who default and walk away while they have the capacity to pay their mortgages, or who do not complete a workout alternative in good faith, are affected by the ruling. Those with “extenuating circumstances” may be eligible for new loans in two to three years.

Fannie Mae will also be pursuing legal means to recoup mortgage debt from borrowers who strategically default on their loans. Fannie Mae and sister company Freddie Mac Federal were taken over by the U.S. government in September of 2008 as a result of huge losses and plunging investor confidence. As a result – you better have a good negotiator working on your short sale.

Freddie Mac currently bans walk-away mortgage holders from receiving new Freddie-Mac backed loans for five years. Call or email us if you have any questions about your current situation. Our advice is always free.