New penalty for homeowners who walk away
Losing your home to foreclosure is one thing. But walking away just because it's financially convenient could hurt down the road.
With millions of Americans owing more on their mortgages than their houses are worth, many are opting for a "strategic default" -- allowing a house to go back to the bank, even though the borrower may be capable of making the payments.
In some states, those who choose a strategic default face lawsuits from lenders anxious to collect what they're owed. Now, the quasi-governmental agency Fannie Mae has announced it's upping the stakes by barring those who walk away from getting an FHA-insured loan for seven years.
"Walking away from a mortgage is bad for borrowers and bad for communities, and our approach is meant to deter the disturbing trend toward strategic defaulting," said Terence Edwards, executive vice president for credit portfolio management at Fannie Mae.
Fannie Mae also said that in states where such lawsuits are allowed, it plans to join lenders in suing borrowers who default. That won't apply to all borrowers -- just those who, in the company's opinion, are able to pay their mortgage but aren't willing. The company said homeowners who make a good-faith effort to repay their loan or have extenuating circumstances won't be affected.
The other big mortgage guarantor, Freddie Mac, already requires a five-year wait for those who strategically default. In the latest quarter, Fannie Mae and Freddie Mac insured about 96% of all mortgages issued, but insure only about half of all mortgage debt currently outstanding in the U.S.
To learn more about how long you would normally have to wait to borrow mortgage money after a foreclosure or a bankruptcy, see this recent story.
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