Fannie Mae to Charge Strategic Defaulters, for Everything

by Jon Prior 
4:20 PM June 25, 2010

Source: Housing Wire

Fannie Mae is sifting through borrower data to determine who is strategically defaulting and who is not after announcing more efforts this week to crack down on those who walk away from their homes. And if the GSE determines someone strategically defaulted, then they say they will hold the borrower accountable for all associated costs of getting the house back on the market, in areas that lawfully allow deficiency judgments.


Often when a home forecloses, Fannie Mae brokers and contractors discover vandalism and missing appliances and fixtures when they ready the home for resale, the GSE said. The cost of making those repairs and replacements will be included in the determination of the deficiency amount, the spokesperson said, in addition to the difference in the mortgage balance and the proceeds from the foreclosure sale.
Those who Fannie Mae and its servicers deem strategically defaulted will not be able to secure a Fannie Mae-backed mortgage for seven years after the foreclosure and could face legal action in order for the company to recoup mortgage debt.


Fannie will base its assessment of who is and who isn’t walking away from their home on income verification, information on the borrower’s credit report, and borrower documentation related to the disposition of prior mortgage loans, a spokesperson for Fannie said.


When a borrower applies again for a Fannie Mae-backed mortgage, he or she would have to produce evidence of hardship or extenuating circumstances to get the loan.


“Borrowers who worked with their servicers to address delinquency and/or avoid foreclosure, will be viewed more favorably than those who do not,” the spokesperson said.


According to the announcement this week, Fannie is instructing its servicers to monitor delinquent loans on the verge of foreclosure and recommend cases where the company can pursue deficiency judgments.

Walking Away From Your Mortgage: 3 Reasons It's a Bad Idea

If all the stories in recent months about walking away from your mortgage are to be believed, the practice of not paying this once-sacred obligation has become, if not quite acceptable, then at least understandable. Whether a person is underwater on his or her mortgage, is unemployed, or both, when you listen to the reasons why they decide to give the house to the bank, it actually starts to make sense.

But the costs aren't always apparent.

If you paid $250,000 at the top of the market three years ago, with a 5 percent down payment on a home that is now worth $150,000, why would you continue paying a mortgage that is more than the home is worth? Why not walk away, find a nice rental, and wait out the downturn while you do everything you can to repair your credit rating?

"We've seen an increase in the number of people contacting us about it," said Jon Maddux, CEO of YouWalkAway.com. His company, for a fee, counsels people on how to implement a strategic default (a voluntarily walk-away) from their mortgage. "People have tried other options -- whether it was a loan modification, a short sale -- and it didn't work. This is the next phase."

Still, says Maddox, "We know it's not for everyone. We prefer they try other options if they can before simply walking away. There's more strategy to it than just not paying the mortgage and waiting for the bank to foreclose."

Indeed, there are several reasons, say experts, to continue paying your mortgage. The consequences, they say, can go beyond the ignominy of not honoring your obligations and the hit to your wallet.

1. It Hurts Your Credit Rating

There is the not-so-small matter of your credit score. Your credit score affects a multitude of things, from the interest rate on your credit cards to how big a down payment you will need on a home. While some people take comfort in the fact that once they are free of mortgage debt, they will be able to pay all their bills and clean up their credit score, it doesn't quite work that way. Once you default on a loan, especially one that you could have continued to pay, "it could be well over seven or eight years before [you] are able to obtain a mortgage to buy a home again," Jay Brinkmann, chief economist for the Mortgage Bankers Association told CNNMoney.com.

Even if a lender decides to take a chance on someone who has walked away from a previous mortgage, larger down payments and higher interest rates might be necessary to qualify.

2. You Are in Danger of a Deficiency Judgment

While homeowners who walk away might assume that they are in the clear once the bank sells their home, they could be mistaken. In some states, lenders can sue you for the difference between what you owe on the loan and what the bank sold the home for. This is known as a deficiency judgment.

"If you live in a recourse state, then the lender can sue," said Maddux. "In some states, they can take up to five years to sue. That's a scary thing, although we've seen very few deficiency judgments." In Florida, which is a recourse state with a lot of homes underwater, lawyers are actively pursuing those who have walked away from loans simply because they were underwater.

3. You Might Be Hit With a Big Tax Bill

Even if you have successfully negotiated a strategic default, you might need to pay taxes on the amount you did not pay back to the lender.

The IRS' FAQ on Home Foreclosure and Debt Cancellation states that "if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes."

While bankruptcy, insolvency and non-recourse loans are not taxable, there are instances in which you will owe taxes on an unpaid mortgage. If you refinanced your mortgage, and used some of that money for something other than home improvements -- whether it was for college tuition, paying off credit cards, or a second home -- you can be taxed on that money.

The bottom line is that walking away from a mortgage "is not something to take lightly," says Maddux. "One of the worst things a person can do is put the key in the mailbox and move out," he says. "If you are struggling to stay in your house: get legal advice, get professional advice. It's better for everyone if you stay and work something out."

By Patricia Orsini

Housing Watch

Senate OKs new tax credit closing deadline

The Senate has amended a bill to give homebuyers who were under contract on a home purchase by April 30 an additional three months to close their escrow and claim the federal homebuyer tax credit.

The current deadline requires buyers to close by June 30 to get the $8,000 tax credit for first-time homebuyers.  Existing homeowners buying a new primary residence are eligible for a $6,500 credit.

The proposal would not have a significant impact on future home sales as the extension would be only for home buyers who already had a contract in hand by April 30.

Lawmakers Consider Home Tax Credit Extension

First time home buyers looking to collect the $8,000 federal income tax credit might still get some time to close on their purchases if a senate amendment unveiled Thursday makes it into law.

Currently as it stands, home buyers must have signed contracts by April 30th and close by June 30th.  The closing deadline, could be pushed back to September 30th.

Lawmakers are not scheduled to vote on the bill until next week at the earliest.


"By extending the transaction deadline, we can ensure that everyone taking advantage of this credit can complete the purchase of their new home" Senate Majority Leader Harry Reid.

Close by June 30th to Claim the Federal Tax Credit

Source:Redfin

If you’re closing on your home this June, you may be eligible for the federal home buyer tax credit.

June 30^th is the closing deadline for this tax credit, so there will be a lot of people trying to close on their homes. That means some serious volume at your local lender, with underwriters who are struggling to keep up with all the loan approvals.

Long story short: there might be some unlucky home buyers who try to close in time for the tax credit, but end up slipping into July. You don’t want to be one of those people.

We put together a list of tips for our clients who are trying to close in time to qualify for the tax credit. Here’s what we came up with:

1. Have all of your mortgage approval documentation ready. Put them in an easy-to-transfer electronic format, such as PDF. Keep these files ready on your desktop, a zip drive, or uploaded to an email account.  This documentation includes: pay stubs, W9s, tax returns, bank statements, employment letters, stock positions, ID, and any other information required by your lender.
2. Make sure your bank has ordered and processed your appraisal. Also, be sure that your loan file is in process with underwriting.  An appraisal can take anywhere from a few days to over a week and no loan is ready to close until it has been approved by your lender.
3. Contact your loan officer daily. Be a “squeaky wheel” to get your loan closed. The squeaky wheel gets the grease, and in this case the grease happens to be worth several thousand dollars.
4. Keep your agent in the loop. It’s your agent’s job to keep the process moving and to look out for your best interests. If your agent is napping on the job, nag them. Nicely. But nag them.
5. Move your money around now, and do not take out any new lines of credit.  No new loans, no new cars, no new credit cards, and no new major purchases. New credit = changes to your credit score. Changes to your credit score = your lender’s underwriter starting all over again. The underwriter starting all over again = bad.
6. Schedule your closing as soon as possible. You won’t be able to schedule closing until you get the final underwriter approval from your lender. Your lender should tell your agent as soon as this happens, but don’t take any chances — call your agent to make sure the info went through. Once you have underwriting approval on your loan, work to get your closing date set as early as possible. You want to have at least a two-day buffer before June 30^th, but a week is even better.
7. Perform your final walk through at least 2-3 days before closing. Make sure everything that was supposed to be fixed post-inspection was actually fixed. Also, make sure no new damage popped up in the meantime. This is especially critical with FHA loans, which can be rejected unless the FHA’s standards of livability are met. For example, we’ve had clients who needed to paint a set of stairs or replace rotted wood before their FHA loans were approved. Not the sort of thing you want to be doing on June 29^th.
8. Stay calm and collected. With a little planning, attention to detail, and teamwork with your agent, you should have no problem closing in time to claim the tax credit.