Fannie Mae announced policy changes yesterday designed to encourage borrowers to work with their loan servicers and pursue alternatives to foreclosure. I believe they are referring to “strategic defaults” which is when a borrower can afford to make the payments but chooses to walk away instead, usually because they realize it could be 15-20 years before they have any equity in their home again. Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for new loan in a shorter timeframe. 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.
Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.
Troubled borrowers who work with their servicers and provide information to help the servicer assess their situation can be considered for foreclosure alternatives, such as a loan modification, a short sale, or a deed-in-lieu of foreclosure. A borrower with extenuating circumstances who works out one of these options with their servicer could be eligible for a new mortgage loan in three years and in as little as two years depending on the circumstances.This is important because from what I’ve read, roughly 50% of all loans are backed by either Fannie Mae or Freddie Mac.
You can find out if your loan is backed by Fannie Mae by visiting this site: Fannie Mae Loan Lookup