While I think it's a good thing for Fannie Mae to discourage strategic default, I'm not sure how they can get the data on the borrowers present situation to make a determination that a default is strategic or not.
Another area where Fannie is losing money is on homes that are vandalized and stripped by homeowners prior to foreclosure. Fannie and other lenders are doing nothing to seek remediation for homes that have been stripped of appliances, cabinets, light fixtures, etc.
I believe Fannie Mae and the government are missing the boat on a whole host of other issues, like my pet peeve which is stated income and subprime lending which no doubt were abused, but have been killed instead of reformed. Subprime used to be a way for a credit challenged borrower to use equity they had to save their home until their credit improved. Now, if someone loses their job, they can't pull equity out to get back on their feet, so they lose their home.
Stated-income loans used to be used for the self employed. Now, a large amount of self employed are totally out of the housing market because they can't qualify due to debt ratios that take their business debt into account due to their small businesses. I know plenty of doctors, lawyers, accountants, real estate professionals, even plumbers who would love to buy in this low price and low interest market, but cannot get financing.
This administration and Barney Frank have killed those two options and are doing all they can to kill the small mortgage broker by eliminating yield spread premiums which the mortgage bankers and lenders see on the back side of loans on the sale side, but are being made illegal for mortgage brokers. These are people who wouldn't know a good loan from a bad one if they had to originate one, and they are making all the rules.
Every experienced loan officer and Realtor I know saw this mortgage meltdown coming and I bet I could fix it, and along with it, the economy if given the chance, but instead I sit here and watch Washington and Wall Street make stupid decisions that ultimately do nothing for us troops with boots on the ground and only serve to make Wall Street wealthier while the rest of us suffer through this.
By making it more difficult to finance a home, they are keeping buyers out of the market, and anyone who has taken Economics 101 knows that the supply vs. demand curve has an effect on prices. The housing market will not fully recover until these subprime and stated-income buyers are allowed back into the market. They should be working to make sure more of these loans are done correctly (with 25-30% LTV minimum) rather then what they have done, which is throw the baby out with the bathwater.
Stupid lending practices got us into this mess. Easy credit done correctly could get us out, but instead they have gone the other way and made it difficult for even people with large down payments and perfect credit to get mortgages. One representative in California told me last year she refinanced her Washington D.C. townhome and almost got turned down. She was shocked at how difficult it was to obtain financing, and she's a Congresswoman and pretty well off I might add.
Another point I have is FICO scores. They helped get us into this mess, all that computer modeling did nothing to predict defaults. Plenty of people who have defaulted had great FICO scores. Why are they not throwing that system out and going back to manual underwriting and common sense lending practices. This has worked for community banks which are not in trouble, why not Fannie Mae and the big lenders?
And I don't know why the MBA and Realtor lobbyists have allowed this to happen unchallenged. Not to mention the fact the damage HVCC has done to the market.
So, you see, I am opinionated, but on this issue, all I can say is I applaud Fannie's decision. I'd like to see how they can actually do it, and it's a good first step, but more needs to be done.
Frank Alvarez is the broker and owner of Intellicredit Realty & Loan, a California brokerage that specializes in REO properties.
