“Strategic defaults” or walking away from the old homestead

Notwithstanding that they can afford to make monthly payments, there are homeowners who walk away from their homes, and leave the bank holding the bag, when the value of the home is less than mortgage amount. Well, it seems that Fannie Mae won’t be taking it on the chin without a little payback.

According to the New York Times, a recent report

“found that about 19 percent of all mortgage defaults in the second quarter of 2009 involved borrowers who could afford the loans. In the previous quarter 21 percent of the defaults were strategic.”

Meanwhile, last month Fannie Mae, the government-controlled company that sets lending standards for most mortgages, changed the penalties for borrowers who enter foreclosure with Fannie Mae-backed loans.

Previously, they would have had to wait five years before becoming eligible for a mortgage. Now they can re-enter the market in as few as two years, as long as they first attempt a “graceful exit” via a short sale or a deed in lieu of foreclosure. Freddie Mac, Fannie Mae’s smaller counterpart, maintains a similar policy.

Much has been written about short sales, but we never knew that walking away from a mortgage was called a strategic “default.”

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