About Freaking Time!

It warms the cockles of my heart to read what Fannie Mae intends to do to “strategic defaulters”…..

I remember hearing Jim Cramer actually tell people to do it on TV, and thought “You Scum.”

I’ve been deep underwater on a mortgage on a residence I had to move away from.  I rented it at a substantial carrying loss for five years until I had saved enough money from working to pay off the mortgage when I sold the apartment.  It’s just the right thing to do.

I showed up at the closing, and gave up the keys, locking in a solid six-figure loss, but walked away with my integrity and credit rating intact.

Now Fannie Mae is going to go after strategic defaulters for EVERY DIME in deficiency judgments, including all commissions, legal costs, and repairs for the damages from the truly slimy people who remove the appliances and trash the houses for copper.

That’s on top of the seven year “penalty box” those borrowers will be in, locked out from getting any new mortgage from Fannie.  Now if Freddie can join them, along with the major banks, this wave of stealing from the rest of us may begin to subside.

Here’s the story in Housing Wire.  As a taxpayer and now Fannie Mae owner, I heartily endorse this move.

Echoes of Clint Eastwood ring in my head:  “Do you feel lucky, punk?  Well, Do Ya?”

hh

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10 Responses to About Freaking Time!

  1. John Dunnahoe says:

    Absolutely, positively, agree in spades Howard. These people are no more than common criminals and should be treated accordingly. We need to get back to the days when 20-25% down payments were the norm and not the exception; i mean if you can’t afford the cost and the responsibility, and part of that responsibility is to “see it through”, then don’t sign on the dotted line!

    I could go on and on but, well, it really a matter of principal, of reputation, and a question of personal integrity. My father gave me many things in life but his greatest gift was his unshakable belief in standing by your “word of honor” as he called it–even when walking away might be smarter and easier and a hell of a lot cheaper.

    I say go gettum.

  2. Gary Anderson says:

    Howard,

    The biggest single reason that I was long in REITs for too long is that I was convinced that American’s would never “strategically default” or participate in “jingle mail”. I believed that families that lived in the houses they bought would continue to pay their mortgages even if they were defaulting on their auto loans and their credit card debt. I mistakenly thought that there was a reinforcing ethic operative in America’s vast middle class that rapidly disappeared during the crisis. What I failed to realize earlier in the process was that a subset of Americans only bought their home as a vehicle to make money and had no sense of obligation to it when they began losing, rather than making, money. It was an expensive lesson for me to learn.

    I believe there has been a sea change in the American perception of contract law. The ramifications of that are likely to be with us in unpredictable ways for some time to come.

    Regards,

    Gary

  3. Sechel says:

    Largely Disagree. Corporations are always defaulting on debt and/or forcing lender to renegotiate the terms. I say let people default, the result will be a new discipline on the market and an end to low or non-existent down payments and not documenting the borrowers resources.

    That said Fannie should do two things. First if the law allows for a deficiency judgment then Fannie Mae as the lender should pursue this on behalf of the taxpayer. Second loans that were not properly underwritten should be put back to the original underwriter.

    • hhill51 says:

      Good nuanced comment.
      The strategic defaulters are simply taking advantage of the situation, and pushing their housing costs onto the rest of us, so I think they should suffer all the consequences of their choices, including reporting of the loss by the lender as income to the IRS via 1099’s for Discharge of Indebtedness income.

  4. Egor says:

    HH: agreed … the PTB should do what they can to prevent / lessen the wave of “jingle mail” though the equine left the barn long ago. There seems to be a popular dynamic to take advantage / game the system (which applies to: contracts / mortgages / obligations in general).

    Non-recourse is problematic. Some states are busily legislating to protect the consumer. Also, how do we mandate the owner he must uphold a contract when the contract provides for resolution should payments (the borrowers obligation) not be met.

    Several large corporations have walked away from real estate debt during this credit crisis / deflationary wave … is it OK for them and yet not kosher for individuals? Double standards are not convincing.

    I’m afraid the process to restore sanity will be a long road. It will require modifying the mindset of millions … the what’s in it for me crew.

    E

    ps – I have heard Dave Ramsey suggest a walk-away on his radio show several times

  5. Jesse Livermore says:

    I agree with Sechel. In 2008 ANH strategically defaulted on its Belvedere subsidiary. I don’t remember anyone calling them “scum” for making a financial decision in their own interest.

    A home mortgage is a business contract like any other. When you sign that mortgage, you’re not promising to do absolutely everything you can to keep paying the interest. You’re simply agreeing that if you stop paying, they can take the house back. (In a non-recourse state, it’s kind of like having a built-in put on the property.) You’ll take a hit to your credit rating, but I don’t see how morality enters into it.

    After the banks have made it 100% crystal-clear that they will be pursuing their bailouts and bonuses without regard to the rest of the country, why do we owe them any favors?

  6. r3fman says:

    I agree with Jesse and Sechel. The strategic defaulters are making a rational choice. That does not preclude Fannie et al, from taking the rational step of making the consequences of that choice expensive. Making the ‘strategic default’ more expensive should mean that fewer chose it.

    • hhill51 says:

      OK…. you’ve convinced me. They aren’t bad people cashing welfare checks even though they aren’t starving. As long as all the penalties for default are paid as well, I have to accept that they are well within their rights.

  7. HR says:

    I agree with going after strategic defaulters for deficiencies, but can we afford to keep Fannie and Freddie alive at the rate they are currently losing money for them enforce the seven year “penalty box”? The penalty box seems like a hollow threat to me.

    • hhill51 says:

      I think you are making a key mistake in this, thinking that we are “keeping Fannie and Freddie alive” as if that is to benefit borrowers or even those two companies. Actually, it’s the MBS holders that we are keeping alive by taking the losses onto taxpayer balance sheets. If we decided to let the MBS guarantees go “poof!” then the ones being kept alive happen to be most banks, most credit unions, most insurance companies and pension funds, and… oh yes, amREIT investors. Unfortunately, the MBS are everywhere, and throughout the banking, pension, and insurance businesses, if those Fannie/Freddie MBS were worthless, then the all those other insitutions would be instantly bankrupt. Insolvent. Gone. Imagine the mess if all the pensions, insurance policies, 401K’s, and bank deposit accounts they hold as liabilities were not able to be paid but had to wait for a banruptcy court to decide what sort of discount each takes.
      It’s like AIG. That company is toast. The bailout there went to Goldman, Deutsche, SocGen and Citi, along with a bunch of hedge funds.

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