Three Programs for Drowning Homeowners

There is a great misconception that there are no options for struggling homeowners. The reality is that major players in the mortgage lending market, specifically Fannie Mae, Freddie Mac and HUD (The Department of Housing and Urban Development), would like to avoid foreclosures whenever possible. As a result, they have created loan programs designed with this end in mind.

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What Is The Best Way To Default On Your Mortgage? - Part II

In our present economy, the terms foreclosure, short sale, and deed-in-lieu of foreclosure have become more commonplace. More and more homeowners strapped with homes that they simply cannot afford are making the tough decision to default on their mortgage obligation. Although such a decision solves an immediate problem, the echo of a mortgage default or foreclosure can go well beyond a simple hit to your credit score. Beyond the obvious drop in FICO score and nasty line item on your credit report, the actual impact of these events in the eyes of future creditors needs to be understood.

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What Is The Best Way To Default On Your Mortgage?

So, you wake up one day and decide that the home on which you owe more than the value is no longer a good investment. With the monthly payments killing you, you decide that the right time to unload the property is now. Unfortunately, with the value such as it is, the only way to facilitate this is via an option other than simply selling the home and paying off the mortgage note. This is done through short sale, a foreclosure or providing a deed-in-lieu of foreclosure. Getting this done will get rid of your white elephant house, but what will a move like this do to your credit?

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Fannie Mae Stepping In to Prevent Strategic Default

There has been a lot of hullabaloo lately about homeowners who choose to walk away from their mortgage instead of toughing it out. I am not hear to judge, because I have never been there. I can tell you that any foreclosure has a ripple effect in the community, which has made deals more difficult to close.

One organization that does have a dog in the fight is Fannie Mae and, as of today, they have made their view on the practice crystal clear. Today they announced more severe penalties, read waiting periods, after a foreclosure. Their stated intent is to make options such as loan modification, short sale, or deed-in-lieu of foreclosure much more desirable.

While there will be consideration for homeowners who truly faced extenuating circumstances, defaulting borrowers can now expect to wait 7 years after a foreclosure before being considered for a Fannie Mae loan. This represents a 2 year increase over the previous policy and it is meant to encourage homeowners to work with their servicers to prevent the default.

You can read more in their own announcement.