Last month, Fannie Mae announced new policy changes intended to deter financially competent homeowners from walking away from their mortgage obligation by imposing stiffer penalties for strategic default – a phenomenon that has become increasingly more common as home prices have plummeted and more and more borrowers find that they owe more on their mortgage than the home is worth.

The GSE says borrowers who intentionally default when they had the capacity to pay or those who do not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage for a period of seven years from the date of foreclosure.

Fannie Mae says the policy change is designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure. While a bold attempt at preventing unnecessary foreclosures, the analysts at Moody’s Investors Service argue that the GSE may encounter snags ahead since figuring out who to penalize for strategically walking away will be a significant challenge and implementing the policy could be difficult.

Previously, the GSE barred homeowners who’d been foreclosed on from obtaining a new mortgage for five years. However, Fannie Mae’s new policy extends the foreclosure-waiting period to seven years unless the borrower can prove that they faced extenuating circumstances when they defaulted on the loan.

For borrowers who can prove hardship or document that they attempted to contact their servicer to obtain a loan workout, the waiting period could be reduced to as little as three years. For borrowers who attempt to “gracefully exit” their mortgage obligation by means of a short sale or a deed in lieu may only have to wait two years to obtain a new Fannie Mae mortgage.

Continue reading… DSNEWS.com