The mortgage giant plans to go to court against those who can afford to make their payments but decide it’s not worth it. It also will limit their access to future loans.
Taking aim at homeowners who are able to pay their mortgage but decide it’s not worth it, Fannie Mae plans to go after them in court and to limit their access to home loans for seven years.
The government-controlled mortgage giant said Wednesday that it would instruct the companies servicing its loans to recommend when it should pursue a so-called deficiency judgment —a court order requiring a defaulting borrower to pay any remaining unpaid portion of the loan after a seized home is sold.
Lenders rarely employ court proceedings to pursue foreclosures in California, nearly always opting instead for a streamlined procedure involving a trustee’s sale of the home. Under state law, however, lenders who opt for court proceedings can obtain a deficiency judgment if the mortgage was used to refinance a home, but not if it was used to finance a purchase.
Fannie Mae also said it would make new mortgages harder to obtain for borrowers if it can be proved that they engaged in a “strategic default” — abandoning a home to foreclosure not because the required payments are unaffordable but because the mortgage is larger than the value of the residence. For such a borrower, Fannie said it would not buy or guarantee another home loan for seven years.
Borrowers who worked in good faith with their loan servicers to try to stay in their homes would be barred from Fannie loans for only two or three years, even if they eventually lost their homes after attempts at loan modifications failed.
Fannie Mae’s get-tough policy on so-called walkaways is the latest fallout from the housing meltdown, which has eroded the once widely held belief in home ownership as the path to household wealth.
Fannie Mae’s new policies are designed to prod borrowers into pursuing alternatives to foreclosure, including short sales — transactions in which lenders allow a home to be sold and cancel the debt while accepting less than full payoff of the mortgage.
For the full story click here: The Los Angeles Times
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