THINKING OF WALKING AWAY FROM YOUR DELINQUENT HOME MORTGAGE? Think Twice!
NEW GUIDELINES COULD STOP FLEEING BORROWERS FROM OBTAINING A NEW MORTGAGE LOAN FOR FIVE TO SEVEN YEARS!
There is a disturbing, fairly recent trend among those behind on their mortgages - especially where the balance of their mortgage greatly EXCEEDS today's depressed home value. Some simply walk away - feeling even attempting to make delinquent house payments won't do them any good anyway. Unlike in the past, many of today's delinquent homeowners put little down when they purchased their home, and see little financial commitment to the property, or the loan.
Though this walkaway behavior hasn't occurred much here in Chicago and the suburbs, it has happened with increasing regularity in the hardest-falling real estate markets - including parts of Nevada, California, and Florida.
New guidelines issued and sent to lenders by national mortgage underwriter Fannie Mae on March 31st set stiff new guidelines for those who flee their homes and mortgages, and whose homes are foreclosed. They will prohibit foreclosed borrowers from obtaining another Fannie Mae-backed loan for five years. This could be reduced, with "documented extenuating circumstances," to three years.
Even after the five-year prohibition elapses, foreclosed borrowers will have to put a minimum of 10 percent down on their next home, and have a minimum FICO Credit Score of 680.
Freddie Mac, Fannie's biggest competitor, counts foreclosures as major credit blemishes for seven years, and says they will pursue walkaway borrowers, and preserve the right to go after borrowers for deficient payments, to the full extent allowed by state law.
There are several websites promising "walkaway counseling" for fees ranging from $500 to $1,000. Many homeowners in distress have paid these fees - but will not be protected from lender and further legal action.
At most borrowers' request, lenders are willing to create forbearance agreements, to pay a mortgage delinquency over time, or to short-sell their home for an agreed-upon amount less than what the lender is owed. Over the past year, federal laws have been modified to shelter any forgiven mortgage debt from Federal Income Tax.
Those who walk, however, will not have any delinquent or short debt forgiven, and may owe income tax to the IRS on the full, unpaid amount of the debt. They will also have trouble getting other personal loans - credit cards, car loans, and the like.
Although mortgage underwriters can consider explanations for genuine financial hardships, virtually all who walk away from their home loans will have trouble getting a competitive-interest-rate loan, even years down the road.
Please see Kenneth R. Harney's article in today's Chicago Tribune for more information.
DEAN MOSS & DEAN'S TEAM CHICAGO
