Thinking of walking away from that mortgage? Fannie announces new penalties (loan, foreclosure)

[ChipL]

Addressing the growing trend of those who are walking away from a bad mortgage, Fannie Mae has announced new guidelines and penalties if you are thinking of just saying, "Screw it!". These guidelines are designed to further penalize those walkaways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from funding another mortgage for five years unless there are "documented extenuating circumstances." Even in those cases, the mortgage prohibition is for three years, and after five years, borrowers with foreclosures in their files will have a maximum LTV of 90% and will need minimum FICO credit scores of 680.

What do you think, good idea or bad??

[pghquest]

I dont know if this will make much of a difference. People will need 5 + years to repair their credit if they walk away from a mortgage to begin with.

[goodbyehollywood]

I think it's a positive step. Many people have been buying new homes in two years or less, with far lower credit scores and less down.

The lack of a down payment has precipitated a lot of defaults. People have no financial incentive to stay and ethics and a sense of responsibility are not part of the equation for many borrowers.

I think they're going to have to stiffen the penalties and repercussions even more. The walk aways are just beginning, and I'm not sure anybody is pricing in how little people care, given the lack of equity, nominal repercussions and absence of social stigma. JMO.

[HappyTexan]

Look, if they had bad credit to begin with they really have nothing to lose by walking away. They couldn't afford the high payments so they walk and rent at prices they can afford.

[HappyTexan]

And then look at TV or online or papers. How many times do you see "bad credit no problem".

There is no stigma anymore. People with bad credit CAN and will get loans these days.

[TimtheGuy]

Originally Posted by HappyTexan

And then look at TV or online or papers. How many times do you see "bad credit no problem".

There is no stigma anymore. People with bad credit CAN and will get loans these days.

Not for a home.

[HappyTexan]

Originally Posted by TimtheGuy

Not for a home.

Go google "get a home with bad credit" if you don't believe me.

[GLS]

Originally Posted by ChipL

Addressing the growing trend of those who are walking away from a bad mortgage, Fannie Mae has announced new guidelines and penalties if you are thinking of just saying, "Screw it!". These guidelines are designed to further penalize those walkaways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from funding another mortgage for five years unless there are "documented extenuating circumstances." Even in those cases, the mortgage prohibition is for three years, and after five years, borrowers with foreclosures in their files will have a maximum LTV of 90% and will need minimum FICO credit scores of 680.

What do you think, good idea or bad??

I will avoid commenting on individual circumstances because I believe several threads have become a firestorm of justifying why a specific person in a specific house is in trouble.

However, I do think the tighter rules would minimize future damage from "flippers" and opportunists that juggle 5, 6, or seven houses without adequate cash flow or capital reserves. If the new rules would prevent speculators from dumping houses unscathed, then repeating the same behavior later, it would be beneficial.

[ajpacino]

I dont think this is true, many people have foreclousurs on there credit and it is a lender by lender descision to lend to someone, Every lender has different guidlines. fannie may can keep you from qul. for a FHA loan but not a conventional loan.

[ChipL]

Fannie is conventional.