Strategic Defaults Mortgage - Fannie Mae Strikes Back

Strategic defaults mortgage or what some are calling the "walk away mortgage" presents an interesting phenomenon in today's mortgage crisis across the U.S. Homeowners and rental owners alike with a mortgage exceeding the value of the property are intentionally defaulting on their loans, even though the owners are capable of paying the mortgage every month.

Borrowers have a rationale behind the walk away mortgage. They are pocketing the money and then using that money to rent something else for less. Fannie Mae, the government sponsored enterprise, realizes it has a growing problem on their hands and has announced measures against these strategic defaulters.

Borrowers intentionally defaulting on loans but have the financial capability to pay or did not take good faith steps to work out alternatives with their lenders will be unable to take out a new Fannie Mae backed mortgage loan for a period of seven years from the date the property becomes foreclosed upon.

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," says Terence Edwards, executive vice president for credit portfolio management. Therefore, strategic defaulters can expect a longer waiting period to take out a new loan.

What's more? Fannie Mae plans to take legal action to recover any outstanding debt from strategic defaulters. The following are potentially three workout alternatives for borrowers to consider:

Loan modification occurs when a borrower has difficulty making mortgage payments and works with the lender to modify the terms of the mortgage.

Short sale occurs when the mortgaged property sells for less than the balance of the loan.

A deed-in-lieu of foreclosure occurs when the borrower conveys the interest in the property to the lender in order to satisfy the mortgage. As a result, foreclosure proceedings become unnecessary.

According to Fannie Mae, a borrower with hardship circumstances who works with their lender can potentially become eligible for a new loan in three years.

Source: Fannie Mae Press Release