Fannie Mae Cracking Down on Strategic Defaults

There’s been a lot of talk about strategic mortgage defaults. Here’s the scenario: Bob Buyer purchases a home. After a few years the real estate market has a “correction” and the house is no longer worth what Bob paid for it. Even though he can still afford the payments, Bob decides it makes better economic sense to walk away from the house and let the bank foreclose.

Here’s a 60 Minutes segment on Strategic Defaults:

Fannie Mae has decided to take a strong position with borrowers who can pay their mortgage but choose not to. It will now take 7 years before Fannie Mae will guarantee a mortgage for a borrower who did a strategic default. Not only that, they will try to get deficiency judgements against these borrowers to attempt to recoup the money that was not paid back. Some states are non-recourse states which means that the bank can’t go after the borrower for the unpaid money, but Massachusetts isn’t on the list.

People who have fallen on rough times won’t face these same issues. Borrowers who lose a house due to a financial hardship will find a much friendlier Fannie Mae willing to back a loan for them in only 2-3 years.

So if you can afford to continue paying your mortgage but have been considering just walking away, think carefully. You still might end up owing the money but you’ll no longer have the house.