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June 24th, 2010

Strategic Default: No New Mortgage for 7 Years!

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A while back one of our dedicated readers told me she couldn’t understand why the mortgage industry wasn’t doing more to persuade borrowers from strategically defaulting (when a borrowers who can afford their monthly payments defaults on purpose). As of yesterday, the biggest player in the American mortgage market took action.

Fannie Mae announced that they plan to “lockout” borrowers for seven years who have strategically defaulted — a.k.a “walked away” — from their mortgage:

The new policy will get rid of the five-year waiting period for all borrowers who go into foreclosure. Instead, the waiting period will stretch to seven years for borrowers who can’t demonstrate that they faced “extenuating circumstances” when they went into foreclosure or that can’t document an effort to get a workout from their lender. For borrowers who can show “extenuating circumstances” or that they tried to get a loan workout, the waiting period could be reduced to three years.

Keep your documentation for…years

The fact that Fannie could be locking out borrowers for an additional four years if they can’t present or prove “extenuating circumstances” or that they didn’t first try to workout a deal with their lender means that borrowers need to keep careful records, and keep those records for years and years.

We have read countless comments from borrowers who, for one reason or another, haven’t qualified for a loan mod. Many of these borrowers have made several phone calls, sent in several sets of paperwork, and still nothing.

For those of you out there who have tried or are trying to get a loan mod, we offer this very essential advice:

-Document every phone call with times, duration of your conversation, the names of whom you spoke with and what information they told you. We strongly suggest you follow up these conversations with written correspondence (with receipts of delivery).

-Make copies of all the paperwork you send to your servicer, the dates you sent them and how long it took for them to get back to you, if at all.

-Finally, keep all this documentation in a safe and accessible place for seven years (at least) — your next mortgage might depend on it.

Related Articles:

If You Walk Away, How Long Till You Can Own Again?

Have You Considered Walking Away?

Is Your Home A Burden Or An Investment?

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7 Responses to “Strategic Default: No New Mortgage for 7 Years!”

  1. Laura Morton Says: July 5th, 2010 at 9:48 pm

    No mortgage in 7 years is a good trade off for a strategic default. The bank is buried in paperwork. And there is a maze of legal steps to take before the homeowner is kicked out. It takes the lender about 13 months to get rid of the homeowner. With a monthly mortgage of $3,000 the homeowner will have $39,000 to start over.

  2. Tim Manni Says: July 6th, 2010 at 11:41 am

    Hey Laura,

    Thanks for sharing your opinion! Hope to hear from you again soon,
    Tim

  3. Disgruntled Homeowner Says: October 8th, 2010 at 2:41 pm

    After what I’ve been putting up with from my brand new home, in my subdivision, and being underwater currently, I could go without owning for the rest of my life! Seven years? Pffft. Stick it to ‘em just like they’ve stuck it to us, I say! The only reason I haven’t walked away from my mortgage is that Alabama is a recourse state, meaning the lender can come after me for the deficiency.

  4. Tim Manni Says: October 8th, 2010 at 2:48 pm

    Disgruntled,

    Probably a good idea, not walking away. Here’s an article for more info on walking away: “http://library.hsh.com/articles/homeowners-repeat-buyers/the-pros-and-cons-of-walking-away-from-your-mortgage.html” (http://library.hsh.com/articles/homeowners-repeat-buyers/the-pros-and-cons-of-walking-away-from-your-mortgage.html).

    Thanks for commenting,
    Tim

  5. Beaten Serf Revolts Says: December 7th, 2010 at 9:57 pm

    I am so Pi#$@d off. 1) At my bank, for loaning me an amount of money I obviously couldn’t repay if life tossed me a single curve ball, and more, 2) at myself for being so delusional to think because I was approved that I could afford it! I am not paying another dollar to another mortgage/lending company again, starting with my “strategic default”. Why in the WORLD would ANYONE who wakes up and smells the roses (meaning someone like myself who finally gets that they bought a house they couldn’t afford) ever care that Fannie Mae won’t loan to them again for seven years?

    Let me tell the world that I have learned my lesson, and I will never again pay a single dollar to the feudal lords who now think they own my very life and threaten me daily (by telephone and mail) with dire and extreme consequences if I don’t pay what is their due. Have I fallen asleep and somehow awoke in the middle ages? Last I knew, my mortgage is a business transaction and my house is the collateral. It is NOT a signature in blood against my life! To threaten me that my credit and my ability to ever borrow again and even to function normally in society (ie, ever get a new cell phone, car, etc) is destroyed, is positively medieval. They can take my house, they can’t take my LIFE. As a free citizen of a free country, I am ending this perverted Lord/Serf relationship with lending. When I accept credit of any kind, I am allowing lenders to have power over my life, even if it’s temporary. By refusing to participate (and regaining control), the threatened consequence of defaulting (ruined credit and no ability to re-borrow for seven years), becomes meaningless. Lesson learned. I will not be buying a home again unless I can own it outright. Now THAT’s the true definition of being “qualified” for home ownership.

  6. Laura Morton Says: January 30th, 2011 at 3:07 pm

    No mortgage for 7 years. I could live with that. Imagine underwater by $200,000 I believe the trade off if just fine.

  7. anon Says: September 28th, 2011 at 9:12 pm

    so not only has the government created and accelerated this mess by pandering and bailing out the banks, they further exacerbate by going after the previously honest folks they swindled. Keep dreaming FNMA. Nothing you can do will ever counteract the mess you stood willingly by and made by duping the working classes into more homes than they could possibly afford. And you lash out at those in the middle classes who got screwed by this by increasing the penalty on those with means enough to survive to this point? I believe there is a line that ends with “and the horse you rode in on”.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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