I wrote on Monday about Fannie Mae’s recent announcement that it would “lock out” borrowers from obtaining a new loan for seven years if they chose to “strategically” default on a mortgage they could have afforded.
Then on Tuesday, Freddie Mac CEO Ed Haldeman said the company has seen the number of its short sales increase 600 percent from 2008 as people choose this route over foreclosures.
My point of view on strategic defaulting has been well-documented as I have been blogging about this for a couple of years now. One of my more popular blogs on this topic was whether strategic defaulting was a financial issue, moral issue or both. Essentially I think it’s a very personal decision that with a lot factors that need to be considered. And some of those factors that should be taken into consideration are foreclosure alternatives such as the ever-popular short sales.
Haldeman went on to say that Freddie Mac is doing everything it can to prevent more foreclosures, and some of these efforts are influencing the growing popularity of short sales in situations where foreclosure is imminent and loan modifications have failed.
A short sale is so popular because it allows the sale of a property to be done at a moderate loss (as agreed upon by the bank and borrower). By going the short sale route and avoiding foreclosure, hefty fees for the bank and a poorer credit report for the borrower can be mitigated.
One report added the following:
Haldeman was quoted as saying that “Foreclosure alternatives like short sales and deeds-in-lieu help borrowers to avoid the stigma of foreclosure, shorten the waiting period before they can buy a new home, and may inflict less damage on their credit reports.” He added that these alternatives are also helpful to lenders and insurers. Citing several independent studies, Haldeman said banks lose more than $50,000 per foreclosed home or as much as 30-to-60 percent of the outstanding mortgage.
And, remember, short sales do not – necessarily – release the borrower from the obligation to pay the remaining balance of the loan.
As I said on Monday, just walking away is bad business for all. However, it could make financial sense for some individuals depending on their specific situation. It’s definitely an important personal decision that needs thoughtful consideration.
There are many things to consider both when deciding to sell your home or if you’re interested in purchasing a bank-owned property. Let me know your thoughts and if you want to chat about short selling your property. I’m here to help.
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