Thursday, June 24, 2010


It's been a few weeks, but in my last blog I told you my Grandmother would have rolled over in her grave while 60 Minutes was doing their piece on strategic defaults.

You remember, that was the little piece of journalism telling the world how financially solvent couples were simply deciding not to pay their mortgages because the new neighbors got the same houses for much less. The "Why Should I Have to...." cry was echoing off my vaulted ceiling out of the television speakers.

Well, apparently Fannie Mae, one of the larger loan insurers, doesn't much like the idea of strategic defaults either.

Fannie Mae announced policy changes on Wednesday that will have a dramatic effect on the ability of borrowers who have defaulted on their loans to receive future Fannie Mae insured loans - and they insure a bunch.

Under the changes, a defaulting borrower who has the ability to pay, OR who did not complete a work-out alternative in good faith (read Loan Modification, Short Sale or Deed in Lieu of Foreclosure) will be ineligible for a new Fannie Mae backed mortgage for a period of SEVEN (yes, I said seven) YEARS!

That's a long time. Hmmm, lets see; seven years ago I had children at home, who were still a ways away from High School graduation (now they're both gone and one is married!). Seven years ago was a different decade. Seven years ago was a different President and a different economy. Do you get my drift?

So what's Fannie Mae's goal here? Read further....."We're taking these steps to highlight the importance of working with your servicer. Walking away from a mortgage is bad for borrowers, bad for communities, and our approach is to deter the disturbing trend toward strategic defaulting." says Terence Edwards, Executive Vice President for Credit Portfolio Management (obviously someone important I guess).

And there you have it. What I would refer to as the goverment's version of Grandma's wooden spoon. I'm not out there with some folks who are pointing the finger at everyone in trouble on their mortgage, declaring they were foolish to take these risky loans. Lets be honest. This market has tanked in our area about 25%. So unless you have 30 - 35% in equity, you yourself are one life event away from being in the same boat.

That being said - it makes me sick when people are gaming the system for personal gain at great expense to the rest of the community - and that's what these strategic defaulters are doing. (May I just remind everyone that when you signed your mortgage contract you did not say you would pay UNLESS the house dropped in value? You said you'd pay until the obligation was met or until you sold the property......'member?????)

So friends, lets all do our part to help right this real estate boat. We all have a stake in it. To preserve the right to future borrowing, under reasonable rate and terms, protect yourself if you find defaulting on a mortgage becomes your reality. Contact your lender (but check what they tell you with other local advisors), contact a Realtor who has the CDPE or CDPD designation, contact Consumer Credit Counseling for help with a loan modification (it's free). All these people can explain your options....those that will keep as many possibilities open to you in the future.

But most of all, don't expect to bank the mortgage payment while "strategically" defaulting on your loan. It could cost you a lot more than just a low credit score.