Yesterday Fannie Mae announced they would begin “cracking down” on individuals who decide allow their home to be foreclosed upon despite an ability to make payments. This tactic is called“strategic default” and is very common in parts of the county where property values have decreased uncontrollably. Homeowners have seen the value of their property drop over 50% make the decision to give up the house and start again. Such a decision is most times based on the reality that they will not see the value return to anywhere near the value at the time of purchase. This decision is the ultimate in taking control of your finances.
Fannie Mae, along with Freddie Mac, Ginnie Mae are the big three quasi-private entities that have been the financial support for the mortgage markets for the last 25 years. These same entities provided the fuel for the housing bubble of the last decade. In December of 2009, Fannie Mae and Freddie Mac were extended an unlimited line of credit from the Federal Government to ensure that the housing market would not totally collapse. In effect, the biggest company of all to be bailed out by taxpayers is good ol’ Fannie Mae.
Despite this utter dependency on the U.S. Taxpayer, Fannie announces that it must crack down on the homeowner (most of whom are taxpayers) that makes a decision about their finances that is in their best interest. It makes me think that this is a case where the biggest pig at the trough refuses to allow any of the others any benefits.
This announcement from Fannie Mae is as newsworthy as my lunch order. As far as Kentucky goes Fannie Mae has always had the inclination to proceed against homeowners for deficiency judgments after mortgage foreclosure. Homeowners who have been foreclosed upon have dealt with harm to their credit reports and the reality of an action to enforce a deficiency judgment for the difference between he loan amount and the money made at the foreclosure sale. Fannie Mae’s announcement is neither a change in public policy nor a change in its debt collection practices.
In Kentucky, we have not experienced the wild variations in the housing market that have occurred in other parts of the nation. As a result there are not as many strategic defaults here as in other places but that is likely to change if pre-owned home sales continue to decline.
The day before Fannie’s announcement, National Association of Realtor’s announced that pre-owned home sales dropped 2.2%. This indicates that the housing market is not faring well after the end of the home buyer tax credits of earlier this year. Should this drop continue the values of homes not just in Kentucky but around the nation are likely to plummet.
The most interesting thing about this announcement is that an entity which is absolutely dependent upon the taxpayers for its survival is willing to announce that it will “punish” those who follow through with a strategic default. Appears to be yet another instance where the Federal Government is more focused on corporations than the citizens.
When Fannie is at the trough, stay out of her way!