On June 23, 2010 Fannie Mae issued a press release that outlined a more hard line stance on people who are walking away from their homes despite being able to afford the payments
FNMA Bulletin
You may ask, “What is a strategic default?” Good question!
There are a couple parties involved here
- You the borrower
- The investor who backed your loan
- The servicer who is handling your loan for the investor (this is probably who you have thought was your lender. i.e. the institution you have been making your payments to)
In a short sale, your investor will consider allowing a short sale if you are behind on your mortgage payments and have a good reason for being so. The problem for these big investors/insurers of loans are that people are walking away for strategic reasons, not just due to legitimate hardships. For example, people in CA who owe $600k on a house that is worth $300k are deciding they will never be able to dig themselves out and are bailing left and right.
What this bulletin is ultimately saying is that Fannie Mae (who was a government agency, then went private, and now is back to being government owned) is trying to make people think twice about this. They are doing so by stating the following:
- If you strategically default then you won’t be able to get another loan backed by FNMA for 7 years. Keep in mind a good 50% or more of loans are backed by FNMA and Freddie Mac, so chances are your loan would fall in this category.
- The will try to come after you if they can. You may want to read this article Submit on whether or not this applies to you if you live in Iowa. It ultimately will come down to whether they have obtained a judgment against you yet, and if that judgment is “In Personam” (against you the person) or “In Rem” (against the house or the land). If they have received a judgement in IA and it is “In Rem” chances are they waived the right to come after you in exchange for you waiving your rights to redeem the property after the house is sold back to the bank.
You may ask how they will know if you are defaulting strategically or whether you have a legitimate case? Well, they check a couple ways,
- They do a soft credit pull. They are going to look on your credit to see if you are paying everything else and not paying your mortgage only.
- The will look at your financials (i.e. Bank Accounts, Paystubs, 1040′s, W-2′s, Financial Statements, etc). They will try to see whether you HAVE the money and are choosing not to pay or whether you are really having a hardship.
To summarize, they can turn down your short sale if you are defaulting strategically. They will also deny you for a loan for up to 7 years and they will chase you for the money afterwards if they are not precluded by law from doing so.
