Fannie Mae announced yesterday that homeowners, who in good faith do not try and find an alternative to foreclosure, will be denied the ability to get another Fannie backed loan for seven years. What I think has a little more bite is the fact that Fannie also plans to pursue legal actions (default judgements) where the law allows it against these same homeowners. The message to troubled property owners..you better not hide from your problems!
The take away:
With the options available to sub prime borrowers in the last boom period, I doubt that not being able to borrow (insured by Fannie Mae) in order to buy another home, is going to have much affect on so-called “strategic defaulters”.
I think the target for the default judgement announcement is the investors who so loosely utilized funds to buy properties and never spent a dime because they figured they could flip the property. This is not a stab at investors in our free-market system…just also asking them to take the responsible steps of honoring their obligations.
The carrot of encouraging borrowers to work with their lender to resolve their problem has appeal. I hope that this effort will be more geared to short sales than modifications. I fear to much emphasis on modifications in order to help a homeowner keep a home they can’t afford and still can’t afford after the modifciation.
Orderly liquidations of these homes should be the goal. Why did it take so long for Fannie to say “no mas” to the strategic defaulters? Where is Freddie Mac on this topic? How about all of the direct lenders?
