Fannie Mae Cracks Down on Strategic Defaulters

Borrowers who are determined to have the ability to make their monthly payments but walk away from their homes will not be able to secure a Fannie Mae (FNM)-backed mortgage for seven years after the foreclosure, according to a new policy announced by the mortgage giant this week. Fannie Mae will also take legal action against borrowers who strategically default in order to recoup mortgage debt. These would be limited to locations that allow deficiency judgments. According to the University of Chicago Booth School of Business, one-third of all defaults are strategic. Fannie will instruct its servicers in an announcement next month to monitor delinquent loans on the verge of foreclosure. They will recommend cases for Fannie to pursue deficiency judgments. Terence Edwards, executive vice president for credit portfolio management at Fannie, said these steps are meant to urge borrowers to work with the servicers. “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,” Edwards said. “On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.” Write to Jon Prior.

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