Fannie Mae’s Wrong Headed Gambit To Staunch Strategic Defaults

Last week, Fannie Mae issued a press release announcing that it was putting into place policy that would block strategic defaulters from getting a new Fannie Mae backed loan for seven years following the foreclosure.  In addition, Fannie Mae will also instruct its servicers to pursue deficiency judgments against borrowers where they are allowed.

Clearly, mortgage lenders do not like strategic defaults. They don’t like them because they’re kind of a wake up call to reality. Once lenders are forced to take back a home, they must face the immediate loss in value, which is why they want people to continue to pay. As long as they’ve got a paying mortgage, they can keep pretending the property securing the mortgage is worth the note value.

Yet, you’d have to have been living under a rock not to know that neither the lenders nor the servicers have done much to help homeowners avoid foreclosure. They’ve been recalcitrant when it comes to both loan modifications and short sales and many homeowners have, understandably, thrown up their hands and decided that walking away could save them a whole lot of stress and aggravation.

Instead of actually forcing its servicers to engage in meaningful work-out solutions with borrowers, Fannie Mae is, in effect, sticking its head in the sand and pretending that we aren’t in a foreclosure crisis at all.  The lenders do not want to face any losses at all, which meaningful work-out solutions would invariably force them to do, though not as steep as they would face in foreclosure.

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4 Responses to “Fannie Mae’s Wrong Headed Gambit To Staunch Strategic Defaults”

  1. […] such as lender approved short sales and deeds in lieu. However, as I have pointed out  in yesterday’s post on the subject,  lenders and servicers have proven completely unwilling to work with borrowers […]

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