Fannie Mae Penalizes Strategic Defaulters

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WASHINGTON – Fannie Mae announced a new policy yesterday aimed at encouraging troubled homeowners to find alternatives to foreclosure by banning those who walk away from getting new loans for seven years.

Troubled borrowers who do not try in good faith to work out a deal, but have the capacity to pay, are targeted by the policy announced Wednesday.

"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," said Terence Edwards, executive vice president for credit portfolio management.

A strategic default occurs when a homeowner stops making payments on a mortgage despite being able to do so. It has become increasingly common in communities where housing values fell sharply and homeowners are "underwater," or owe more than their houses are worth.

Fannie Mae said that in locations where the law allows, it also plans to take legal action to recoup outstanding mortgage debt from borrowers who strategically default. The company plans to instruct its servicers to monitor delinquent loans facing foreclosure and recommend cases to pursue for such judgments.

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