THINK TWICE BEFORE YOU MAKE A "STRATEGIC DEFAULT"
Over the past year, I've noticed a trend of homeowners who are simply choosing to walk away from their home. When I speak with homeowners they sometimes feel that they don't have any other choice but to default and walk away. They feel hopeless and frequently don't seek guidance from a professional to explore their options. Often, they simply give up, walk away, and start over.
Homeowners need to think twice before they make the decision to walk away from their loan obligations. Fannie Mae (FNMA) has announced new guidelines making it more difficult for homeowners to strategically default. Defaulting home owners who have the ability to make their payments, or did not contact their lender to pursue alternatives, will be ineligible for a new FNMA-backed loan for a period of 7 years from the date of foreclosure.
CLICK HERE for Fannie Mae's Selling Guide Announcement.
WHAT IS A STRATEGIC DEFAULT?
A strategic default is when a homeowner chooses to walk away from their mortgage when they have the ability to pay. Typically, their mortgage is higher than the market value and the homeowner feels their options are limited. Homeowners who walk away realize they are damaging their credit records, but are making a calculated decision that sticking it out over the long-term would be worse.
If FNMA determines that you have an acceptable hardship resulting in a short sale, you will only have to wait 2 years before obtaining a mortgage backed by FNMA. Another possibility is "deed in lieu of foreclosure" whereby the homeowner signs over their house to the lender vs. property foreclosure.
For a more detailed explanation of the new guidelines CLICK HERE.
Integrity Residential Brokerage, licensed in both Massachusetts and New Hampshire, would be happy to assist you in your home buying or home selling needs. If you, or anyone you know, is considering buying or selling a property, Integrity Residential Brokerage located in Pepperell, MA, would love to hear from you! We strive to offer you the highest level of professional assistance possible making your desires and goals a reality.
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Catherine Condon, Broker MA & NH
It's still surprising to me that you only have to wait 2 years after a short sale. And I wonder if the 'strategic default' people think the market will never correct itself.
Hi Pam,
Two years does seem like a "short" period of time. Perhaps though it allows people to re-coup and re-enter home ownership which will help the market rebound. Hopefully, caution will rule!
Regarding folks who are deciding to strategically default - like any investment, there are highs and lows. If one waits long enough, it's still the best investment one can make.
Strategic Default is an acronym for cowardice. If one is an ostrich - then stick your head in the sand. If you are a responsible individual - do a Short Sale - unless your legal and tax advisors tell you to do otherwise.
The rules that have been put in place are easy to work with and the banks are willing to listen. If you make the calls, work with a professional, there is no reason that in 3 or 4 years you can't get another loan and buy a home. But, to just walk away is crazy!
Tony and Todd - I couldn't agree more. I particularly question the motives of those who have a mortgage that is higher than the market value but aren't in financial straits and don't need to sell. They're simply walking away because they feel it will take too many years to re-coup loan/market value. So what? Is that a good enough reason to default? Real Estate is still the best "long term" investment a person can make. Why dump it, ruin your credit and not be able to procure another loan for an extended period of time?
If a person has lost their job, had an illness, need to relocate for work, etc. then that's a different story. The lenders are willing to listen in those instances which is indicative of the 2 year waiting period after a short sale vs. 7 yrs on a strategic default.