Fannie Warns 'Walkaways' a Second Time

I previously posted "Fannie Mae’s Warning" homeowners that if they walked from their mortgages, it would be a long time before they would re-qualify for a new Fannie Mae (FNM) loan. The San Francisco Chronicle’s “Fannie warns homeowners who walk away” gets more specific. Walkaways that have “documented extenuating circumstances” would be prohibited for three years, other walkaways will be prohibited for five years. All walkaways will need a FICO score of at least 680 to re-qualify.

Freddie Mac (FRE) is actively pursuing walkaways where state laws allow us to “to preserve our deficiency rights.” Freddie was not as specific as Fannie, but counts foreclosure as a major credit problem for seven years.

In a related article, the San Francisco Chronicle’s “New home loan changes bring no relief”, reports that banks and the GSEs require high credit scores and large down payments for the new "conforming jumbos" or "jumbo lites". The loans carry interest rates above 7%. The temporary increase in Fannie and Freddie loan limits for high cost areas are not providing much relief.

Disclosure: Author is long FNM and FRE.

Comments

[Mike Stathis]

Freddie and Fannie want to "have their cake and eat it too." The mortgage industry was perfectly capable of enacting the proper controls on both ends (lender and homeowner), but they did not. Instead, they were too concerned with counting the cash flooding in. You cannot change the rules of the game after the players have entered. I would consider that deceitful business practices at best, and extortion at worst.

For FNM and FRE to come out and make these warnings, after their management fudged earnings in order to get their multimillion dollar bonuses - it's ridiculous!

Perhaps even more ridiculous is their "grave" warning, as if anyone who walks away from a mortgage will be in a position to buy a home within three years anyway! And if they are, a 680 FICO isn't particularly high.