These boots are made for walkin’

Since bailed-out mortgage servicers began dealing with the toxic loans made during the housing bubble, the focus has been on people who couldn’t pay their mortgages. Now Fannie Mae and Freddie Mac have an out for people who have continued to pay while their houses have lost value. These homeowners can almost just ‘walk away’ from their homes…maybe.

Bloomberg reports that, starting in March, Fannie and Freddie (who own or guarantee a combined $5.2 trillion in mortgages) will offer relief to some homeowners who owe more than their house is worth but who have kept up their payments regardless. If these homeowners can show they need to relocate because of work, illness, or some other qualifying reason, they can apply for a deed-in-lieu transaction that will forgive the difference between the home’s value and what’s left on the mortgage, in exchange for handing the property over. (with some restrictions, special qualifiers)

“Fannie and Freddie are finally recognizing that some people are stuck in their homes,” the director of housing finance and policy at the Center for American Progress tells Bloomberg. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their mortgage — not the investor, not the homeowner, and certainly not the neighborhood.”

However, some say the timing of the announcement is bad, given that home prices are beginning to show signs of life and that Freddie and Fannie are still in the hole to the taxpayers who bailed them out to the tune of $190 billion.

“It’s an extraordinarily generous approach for companies still in debt to American taxpayers,” said Phillip Swagel, a professor at the University of Maryland’s School of Public Policy in College Park, Maryland. “We’re giving people an incentive to walk away, right when the housing market is starting to right itself.”

Now, my commentary: On the surface, it looks like it is a good idea for both parties…but once you know how the banks work…it’s not so good for the owner, the lender, the taxpayers or the neighborhood. First…lenders have been notoriously bad in quickly turning an empty house into a home for a new family. I have seen banks sit on a home that they own for years as it deteriorates and affects the surrounding home values and neighborhood quality of living. Next…banks have been sanctioned, prosecuted and penalized for fraudulent paperwork and illegal processes…maybe I am a bit jaded, but I would venture a guess that they would be pushing this “solution” to a homeowner whose paperwork (that the bank would have to rely on in order to do a proper foreclosure) may have some legal ‘defects’. So if the homeowner were to defend a foreclosure action, the bank may have to spend thousands of dollars in atty. fees, and years in court, just to finally take possession of the home. Finally, if the same homeowner were to take advantage of the short sale opportunities and was astute enough to higher an experienced short sale agent, (like us!), the owner could quite possibly walk away with NO monies due the bank AND get some type of monetary relocation payment FROM the bank!

I know I always sound skeptical when a lender comes out with a new program that gets their hands on the deed quickly…but that comes from knowing much more about what goes on than is obvious to the laymen and reporters publishing these stories.

As always…thanks for reading.

If you’d like to chat with me about your situation and options, call me directly at 561.602.1258

Steve Jackson