Government-sponsored mortgage backer Fannie Mae has announced plans to punish those who strategically default on home loans.
A strategic default occurs when a borrower stops paying on a home loan – usually because the property value has fallen below what the borrower owes – even though he or she can still afford to pay on the loan. It’s been termed “walking away” from a home.
Well, now those walking away will have to wait at least seven years before being eligible for another home loan. The new policy is intended to encourage borrowers to try to work out terms outside of the foreclosure process, rather than just defaulting and letting the home go.
"Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting," Fannie Vice President Terence Edwards told the Associated Press.
Fannie Mae and its government-sponsored counterpart, Freddie Mac, back about half the mortgages in the U.S. Currently, Freddie Mac has a five-year penalty for strategic defaults, but could re-examine that policy in light of the new Fannie Mae policy.