Strategic penalties for strategic defaulters
Fannie Mae wants people who walk away from their mortgages to pay -- in more ways than one.
Last month the mortgage financier said so-called "strategic defaulters" will be ineligible for a Fannie Mae-backed loan for seven years, and it vowed to pursue them for the amount owed if the home is in a state that allows deficiency judgments. (Maryland is one of them.)
Wonk reader Josh thought this would make an interesting jumping-off point for discussion. Should homeowners, or rather ex-homeowners, pay a penalty for sending their keys back to their lender and saying "so long"?
Fannie Mae, in case you're wondering, defines the borrowers it intends to go after as those "who walk-away and had the capacity to pay or did not complete a workout alternative in good faith."
"Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting," Terence Edwards, Fannie Mae's executive vice president for credit portfolio management, said in a statement. "On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time."
Much ink and airtime have been used up on the strategic-default subject, from ethical implications to how-to. Some point out that corporations strategically default on loans, so why not homeowners? Others argue that large numbers of people defaulting on loans they could pay will do needless damage to the housing market and the homeowners who are sticking it out.
The Mortgage Bankers Association is on the "don't do this" bandwagon. But, as The Wall Street Journal reported, the trade group sold its Washington headquarters in February for $33.7 million less than the financing it took out in 2007 and refused to say whether it was paying off the difference.
So there's a lot of grist for the conversational mill. What do you think, folks -- should homeowners who strategically default be penalized beyond the credit-score damage that everyone gets from a foreclosure? What about commercial-property owners, for that matter?