Fannie Takes Aim at Strategic Defaulters

"Strategic Defaults" occur when people who still have jobs and enough income to make their mortgage payments walk away anyway.  Why do they do this?  Usually it's because they are way "under water" and they figure that they can default on the mortgage and repair their credit quicker than their house will regain its lost value.  In studies conducted by Experian, the typical strategic defaulter is "clearly sophisticated", usually someone with higher credit scores, a higher loan balance, and a clear idea about the consequences.  In other words, it's a borrower who looks at the situation and says "it's just business."

Well, that's going to be more expensive soon.   Fannie Mae just announced this week that it is increasing the time required after a foreclosure to 7 years for those who default in this fashion.  It gets worse.  The GSEs are going to hold these former homeowners responsbible for the costs of repairs and getting the home back on the market.  I find myself wondering how they will make this determination, but whatever the mechanism, it's sure to create more conditions that must be met by all future borrowers.  We'll see how much it changes the calculus of foreclosure for this group.