Walking away

Posted: April 14, 2008 in Uncategorized

Fannie warns homeowners who walk away

Kenneth Harney

sfgate.com

The country’s two largest sources of mortgage money have a blunt warning for anyone thinking about joining the growing “walkaway” trend, where homeowners stop making payments and months later send the house keys back to their lender: You will feel the pain.

On March 31, Fannie Mae sent out new guidelines to lenders intended for walkaways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from getting another mortgage through the giant investor for five years, unless there are “documented extenuating circumstances.” In those cases, the mortgage prohibition is for three years.

Even after five years, borrowers with foreclosures in their files will be required to make at least a 10 percent down payment, and will need minimum FICO credit scores of 680.

Freddie Mac, Fannie’s rival, counts foreclosures as major credit blots for seven years, and a senior official said the company is now aggressively pursuing some walkaway borrowers “to preserve our deficiency rights” where permitted under state law.

The walkaway trend is particularly noteworthy in former housing boom markets – including California, Florida and Nevada – where many homeowners find themselves upside down on their loans, owing tens of thousands more than the current market value of their houses. If they invested little or nothing in down payments, some owners reason, continuing to make payments – even if they can afford to – may be throwing good money after bad. (There is some other good information in this article worth checking out if you find yourself in this situation)

I’m thinking of a family right now that tried to pull this by stating to the underwriter that the move was necessary for her job (she currently lived 10 minutes away from her home. The house her family was considering was 5 minutes away). Needless to say, the underwriter caught it.

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