It’s not hard to understand the motivation behind Fannie Mae’s announcement that they intend to punish homeowners who walk away from their underwater properties – they got out the stick since the carrot didn’t seem to be working – but they clearly haven’t thought this all the way through as detailed in this report by David Streitfeld in the New York Times.
Fannie Mae’s decision to begin punishing people who walk away from their unpaid mortgages could prove difficult to sell to the public and might be impossible to execute, housing and lending experts said Thursday.
The big mortgage financing company, which owns or guarantees millions of mortgages, announced on Wednesday that it would sue homeowners who have the capacity to pay but default anyway. It also said it would prevent these strategic defaulters from getting a new Fannie Mae-backed loan for seven years, which could potentially shut millions of buyers out of the market.
But it was unclear, the experts said, why Fannie Mae was threatening delinquent owners and what it hoped to achieve. The new direction seems to run counter to the Obama administration’s efforts to reinvigorate the housing market. And there were basic questions about how Fannie would be able to distinguish between those homeowners who defaulted intentionally and the unfortunate ones who had no choice.
“How are they going to do this, and for what result?” asked Grant Stern, president of the Morningside Mortgage on Bay Harbor, Fla. “So they can find the people who have a little money left after their house crashed and take it away from them?”
Fannie Mae will soon reveal more about how they plan to collect the data needed to make the determination about using their big, new stick and may even say how many lawyers they expect to hire. As noted here yesterday, in my view, this could be the final nail in the coffin for the late, great U.S. “ownership society”. Colorado mortgage banker Lou Barnes puts it a little differently, concluding, “Fannie wants to lock people up in a jail of negative net worth for much of the rest of their lives. They’re bringing back the debtor’s prison.”