June 23, 2010 LA Times
Mortgage-finance giant Fannie Mae on Wednesday took aim at homeowners who are walking away from loans they’re capable of paying.
The company, which has been under government control since September 2008, said it would refuse to back new loans for such walk-away borrowers for seven years after they abandon their homes, and would seek to go after those borrowers in court in states where laws allow such pursuit.
From the news release:
Defaulting borrowers who walk away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for a new loan in a shorter time frame.
“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president for credit portfolio management. “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. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”
Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.
Fannie and its sister company, Freddie Mac, are the main sources of U.S. mortgage financing. They buy loans from lenders, guarantee them and resell them to investors via mortgage-backed securities.
One key issue, of course, will be how Fannie and its loan servicers decide whether someone had the ability to pay their loan but decided not to.
Freddie Mac hasn’t announced a similar program targeting walk-aways, but given that both companies are under government control, it would seem odd if Freddie didn’t follow suit.
A Freddie Mac spokesman had no immediate comment.
[Updated at 4:30 p.m.: A Freddie Mac spokesman said the company currently bans walk-aways from getting new Freddie Mac-backed loans for five years. He said the company was “studying the latest change from Fannie and will consider additional changes to our policies as needed to responsibly manage risk in the current market.”]