Fannie Mae wants borrowers to act in Good Faith in working out an alternative solution with the servicer. Simply walking away (“Strategic Default”) may subject a borrower to legal action to recoup the outstanding mortgage debt. This means, strategic defaulters may walk away from the property however under Fannie Mae’s new policy, in jurisdictions that allow deficiency judgments, may not simply walk away from the mortgage obligation. Commencing July 2010 Fannie Mae is instructing servicers to monitor delinquent loans and recommend cases that justify the pursuit of deficiency judgments.
Homeowners who can actually afford their mortgage payments and chose to walk away from their home simply because the property is worth less than what is owed are commonly referred to as “Strategic Defaulters.” This practice of walking way without first attempting to work out an alternative solution isn’t viewed well as the phenomenon adds to the number of foreclosures in San Jose Ca and across the nation.
Fannie Mae announced policy changes designed to encourage borrowers to work with their loan servicers in finding alternatives to foreclosure. Borrowers who could make their mortgage payment and who do not act in good faith in completing a workout alternative will not be eligible for a new Fannie Mae backed mortgage loan for seven years from the day of foreclosure.
“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,” said Terence Edwards, executive vice president for credit portfolio management.
On the other hand, borrowers facing hardship who do make a good faith effort with their servicer do preserve the option to be considered for a future Fannie Mae loan in a shorter period of time. Homeowners who do work our foreclosure alternatives, such as a loan modification, short sale, or a deed-in-lieu of foreclosure could be eligible for a new mortgage in as little as two years. Depending on the homeowner’s situation and circumstances the eligibility timeframe may be longer.
Understand you do have options. Simply walking away may not relieve a borrower from the outstanding mortgage debt … not if your loan is a Fannie Mae backed loan.
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