Borrowers who decide to simply walk-away from their mortgage without trying a work-out option will NOT receive the same lending forgiveness from Fannie Mae like borrowers who short sale.
Fannie Mae recently announced that “strategic defaults” will have to wait no less than 7 years before being approved for a mortgage that can be sold to Fannie Mae. Fannie Mae dominates the secondary market which would mean that home ownership after foreclosure could become an impossible goal for most for a long time.
What Fannie Mae wants is for borrowers to first try a work-out option to avoid foreclosure. They hope that this will pressure more to pursue a foreclosure alternative before stripping out the house and bailing from their mortgage commitment.
It is better for the neighborhoods and for housing recovery in general for borrowers to work with their servicers. Borrowers that are approve for permanent loan modifications mean more borrowers maintaining property. Borrowers who choose to deed-in-lieu or short sale also mean less negative effect on neighborhood values.
Fannie Mae lending options for distressed borrowers who cannot modify:
1) If you Strategic Default or ‘walk-away’ you cannot buy for 7 years
2) If you Deed in Lieu of Foreclosure you cannot buy for two years (reduced down from four years) and must have 20% down. If it has been four years you only need 10% down.
3) If you Short Sale – you can also buy in two years with 20% down or four years with 10% down. If you can prove extenuating circumstances for the need to short sale then you may only need 10% down at the end of two years. Extenuating circumstances would require evidential support of dire circumstance like job loss.
The Fannie Mae waiting period starts the day after foreclosure is filed or the short sale is closed.
It will soon become standard practice, if Fannie Mae has their wish, for borrowers that strategic default to be chased hard and fast for the deficiency. They believe that this will be another weapon against strategic default. Currently, 31% of foreclosures are strategic defaults because the Borrowers know that there is a low likelihood of consequences any are easier than going through the arduous short sale process.
As all of us in the short sale world know however, that Borrowers have many more opportunities to negotiate for NO deficiency when pursuing a short sale. As always I recommend that you clearly disclose the possibility of a deficiency to your short sale sellers and be certain they have their attorney review the terms offered by their servicer regarding deficiency judgments. The ability to negotiate a deficiency is BENEFIT for sellers who choose the short sale option.
Borrowers eligible for HAFA short sales can avoid deficiency from participating lenders.
Have you filled out our HAFA Eligible LEAD survey? Proptrackr has Pre-Approved HAFA Eligible leads for agents….. Click here and find out more!
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