If you’re contemplating walking away from your mortgage, particularly if your loan is backed by Fannie Mae, weigh thoroughly your options. If you’re really distressed, short sales may be the better alternative.
Fannie Mae has warned that strategic defaulters won’t be able to get a Fannie-backed loan for seven years after the default and that it will pursue deficiency lawsuits to recover unpaid balances.
If the FHA, Freddie and other federal agencies backing home loans follow suit, you may have no other option but to be a renter for seven years or more if you decide to walk away. Currently, the loan lockout period for FHA is three years and that of Freddie is five years. There’s even a pending legislation in Congress that would ban FHA loans for strategic defaulters for life.
There are however provisions in the new Fannie policy that you can take advantage of to avoid a seven-year lockout. If you just walk away without even working out something to save your house, you’ll be locked out for seven years, but if you try loan modification but fail, your lockout period would only be three years. If your loan modification failed because you lost your job, you might be considered for a loan after only two years.
With these lockout options, the deficiency judgments may be more of concern to strategic defaulters than the lockout periods. Being haunted for thousands of dollars in unpaid balances for up to 20 years in some states is never a pleasant way to live.
If your mortgaged property is located in a state which bans deficiency judgments, then you are lucky. But make sure your state does prohibit these judgments, and make sure even the refinanced portion of your loans are covered. There are states that ban deficiency collections on home purchase loans, but allow the pursuit of balances on refinanced loans.
Fannie Mae decided to impose these stricter policies in order to force distressed borrowers to exhaust all foreclosure prevention options before they give up. Based on data from Northwestern University and University of Chicago researchers, 31 percent of all foreclosures in March this year arose from strategic defaults, a sharp increase from 22 percent in March last year.
The percentage is even much higher compared to the last quarter of 2008 when about 18 percent of all borrowers in default by two months or more were strategic defaulters.
On the whole, if you can be pursued for unpaid balances, working out a short sale may be better than just walking away. Work with realtors experienced in your area and in short sales so they can find buyers for you more quickly and so they can get the bank to remove the deficiency clause from your short sale approval letter.
 |
New Tampa Communities – All New Tampa Homes for sale | |||