Austin REAL ESTATE

Fannie Mae gets tough on homeowners who walk away

The courts will now come to the mortgage giant’s plans to take on those who
decide not to make their payments. It also will limit their access to future
loans. Foreclosures continue at a rate of 2.5 million a year, Federal Deposit
Insurance Corp. Chairwoman Sheila Bair said, and some 11 million households owe
more on their mortgage than their home is worth.  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.
It was a clarion call to companies servicing its loans to recommend, engaging in
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. 
Under California state law, 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 are slightly underwater — owing just a little more than
their homes are worth — are unlikely to stop paying their mortgages if they have
the resources, according to studies by research firm CoreLogic. But if the
home's value is at least 25% less than the loan amount, borrowers are far more
likely then to walk away.  Last March, 31% of foreclosures were described as
strategic by the borrowers themselves, compared with 22% in March 2009,
researchers at the University of Chicago and Northwestern University reported.