Thursday, June 24, 2010

Fannie Mae Cracks Down on Strategic Defaults

Fannie Mae announced this week that people who can make their payments and who do a strategic default will be forced to wait seven years before they are eligible for another Fannie Mae loan. It is estimated that there are 11 million homes acros America who are under water. A strategic default occurs where a mortgagee chooses to walk away from their mortgage, even though they are financially capable of making payments.

Fannie Mae is a private mortgage corporation that began as a government subsidized entity in the late 30s. Today Fannie Mae, along with Freddie Mac, are government-sponsored and together they are responsible for setting annual conforming loan limits, assuring that most Americans are able to finance a home. Fannie Mae lends to mortgage lenders which in turn extend mortgages to borrowers. They purchase loans from the private lenders who actually underwrite the loans.

It's a process called securitization, and by passing on the loans to the secondary market, banks have more capital on hand so they can lend even more. Fannie Mae and Freddie Mac control about 90 percent of the nation's secondary mortgage market.

Please re-read my previous two blogs, and let's talk in our next blog about what it all means....

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