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Wednesday
Jun232010

Mortgage Strategic Defaults Targeted by Fannie Mae

Strategic mortgage defaults are being targeted by one of the nations biggest lenders. Strategic mortgage defaults usually occur when a home is worth less than the mortgage. This negative equity may prompt homeowners to walk away from their mortgage.

According to real estate firm CoreLogic, approximately 11.3 million homeowners (24%) have negative equity on their properties. Owing more on their mortgage than the home is worth homeowners may have been tempted to strategically default on their payments. If you add the additional 2.3 million people who have less than 5% equity on their homes, approximately 29% of homeowners are struggling financially, and the outlook remains gloomy.

Taxpayer-Owned Fannie Mae Attacks Struggling Homeowners
A default is considered strategic when homeowners have the capacity to pay, yet choose to walk away from their mortgage. The trigger, researchers say, is negative equity: When the value of a home is less than what the lender is owed on it, borrowers are more likely to strategically default.

7 years bad luck for Fannie Mae Strategic Defaults

Fannie Mae has stated that homeowners who strategically default or did not work "in good faith" to avert foreclosure through other means will be ineligible for new Fannie Mae-backed mortgages for seven years.

With so many homeowners struggling financially, and with lenders playing hardball with people's emotions as well as their finances, it can be difficult to know who to turn to for good advice:

  • What other options are their for homeowners unwilling to risk bad credit rating for the next 7 years?
  • Would it be better to consider short-sale vs. foreclosure?
  • Or is Strategic Mortgage Default still an option in some cases?

Our recommendation is to avoid foreclosure in nearly all cases.  The key is to work with someone who understands how to present your short sale case to the lender to avoid foreclosure and the Fannie Mae Strategic Default issues.

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