Fannie and Freddie Go After Jingle Mailers

Mortgage finance giants try to keep struggling homeowners from walking away.

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One of the many curiosities to accompany the mortgage crisis is the growing number of struggling borrowers who have elected to simply walk away from their homes instead of launching an all-out effort to prevent foreclosure. The sharp drop in home prices—which has put millions of Americans "underwater," meaning they owe more on their mortgages than their homes are worth—is one factor behind the trend. Meanwhile, since most mortgages are packaged and sold to investors, rather than held by a local banker, it may be easier for homeowners to justify walking away and sending their house keys to the lender—so-called jingle mail.

In addition, a number of companies have emerged on the Web that present foreclosure as an attractive alternative for cash-strapped borrowers.

But now, government-sponsored mortgage finance giants Fannie Mae and Freddie Mac are taking steps to combat this trend:

From the Sarasota Herald-Tribune:

On March 31, Fannie Mae sent out new guidelines to lenders aimed at 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.

Full article here.

So is this good or bad? I'd say it's mostly good. Foreclosure should be seen as the last possible resort for homeowners, and these new guidelines should help ensure that it is. Unfortunately, the new guidelines are likely to create yet another headache for borrowers who could have qualified for fixed-rate loans but were steered into risky mortgages through deception.