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Fannie and Freddie Looking to Penalize Borrowers who pull a ‘Strategic Default’ No Such Ruling for Banks Who Do the Same Thing… BIG Surprise!

25 Jun

Karl Denninger lays it out in plain English as Fannie and Freddie move to penalize homeowners who ‘strategically default’ on their mortgages.

For those who don’t know what a strategic default is – well,l you’re not really alone – it’s a made up term to describe a borrower who just *might* have money somewhere that they have decided NOT to use to prop up an underwater mortgage and instead make the decision to ‘walk away’ and let the lender take the house back by foreclosure.

Interestingly, there is no real definition for this term: it is very loosely used and very loosely applied by all kinds of people…

Bankers, it seems, like to use it to attempt to portray somthing they would like you to think of as bordering on criminal behavior; unless of course you are talking about THEIR strategic defaults. (wink, wink, nudge, nudge)

What we say around here is that the reality is that ‘Strategic Default’ is when a borrower decides to give up on trying to save their home from foreclosure BEFORE they are completely financially destitute. From that perspective, it might seem much less criminal and more like a smart and rational decision to save a family’s economic well being while being willing to abandon a home they had hoped to live in and love for years to come.

Of course, your definition will be up to you: because everyone gets to put their own spin and inuendo on a term like ‘Strategic Default’. That’s the whole point…

Fannie Screws The Citizens Twice

First, Fannie Mae ran crooked books for years, got caught, ran insane risk models for years more (80:1 leverage anyone?), got caught again, the second time by the market and essentially forced the government to step in lest they default on over $3 trillion in paper sold to, in large part, the Chinese.

Now, having screwed you, the taxpayer, through outright fraud and ridiculous risk-taking and being a prime architect of the housing bubble, they now propose to bend you over again:

(Strike-outs original, italics mine.)

WASHINGTON, DC — Fannie Mae (FNM/NYSE) announced today policy changes designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure designed to assrape anyone who does what banks and other commercial entities do every day – intentionally default when it suits them. Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for new loan in a shorter timeframe may be able to make a campaign contribution to Congress to have their penalty status lifted.

“We’re taking these steps to highlight the importance of working with your servicer our desire to screw you twice – once via forced taxpayer support, and now directly,” said Terence Edwards, executive vice president for credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities Pumping housing prices was ruinously bad for the economy but our executives made millions doing it and now that the bubble has collapsed we have to get whatever we can from those who got scammed, and our approach is meant to deter the disturbing trend toward strategic defaulting individuals from availing themselves of the same options that major banks undertake every single day on their commercial properties. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time to be ripped off a second time by buying another overpriced house.”

Fannie Mae will also take legal action to recoup the outstanding mortgage debt from financially rape borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments for prohibitions on the sale of KY Jelly and Vaseline in those jurisdictions.

Troubled borrowers who work with their servicers, and provide information to help the servicer assess their situation, can be considered for foreclosure alternatives, such as a loan modification, a short sale, or a deed-in-lieu of foreclosure other ways to ruin their credit and lose their house anyway. A borrower with extenuating circumstances who works out one of these options with their servicer could be eligible for a new mortgage loan to buy another overpriced house while signing away their life in three years and in as little as two years depending on the circumstances.

As I have repeatedly said, if you are considering strategic default make damn sure to talk to both an enrolled agent and attorney first so you understand exactly what you’re getting into.

You should now understand quite clearly why I have been so strident in that recommendation for the last two+ years.

Add to that whatever risk factor you consider appropriate in that just like all other branches of the government Fannie will change the rules after the game has been played, exactly as occurred with GM and Chrysler bondholders, and, one presumes exactly as has been and will be done with BP.

When the housing market finally finishes its corrective process you’ll be able to buy a house for 1x-1.5x your annual income.  I know a lot of you don’t believe it, but you will see – it will be true.  If you at the same time have 20% of the price saved as a down stroke, non-Fannie lenders will fall over themselves to lend you the money, should you need it.

If you buy ANOTHER overpriced house and willfully and knowingly destroy your financial future a second time, after being screwed once by the Real Estate Guild in all its forms – Fannie, Freddie, the large banks, the “agents” and brokers of various sorts plus the crooked appraisers and of course government at state, local and federal levels, you deserve what you get.

Oh, as for Fannie?  If you haven’t figured it out, my opinion of this chickenshit game of yours is best expressed as follows:

 

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