Today's Mortgage Rates

If you are planning on just walking away from your home even though you might be able to afford it, a recent rule change by Fannie Mae may make you think twice about it.

Fannie Mae announced that they are changing the rules so that there is a seven year lockout for borrowers who are considered “strategic defaulters”.

WASHINGTON, DC — Fannie Mae (FNM/NYSE) announced today policy changes designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure. Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for new loan in a shorter timeframe.

“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president for credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”

In addition to the lockout period, Fannie Mae will take whatever legal action is allowed to recoup any unpaid balance of a loan as a result of a strategic default. So it is more important than ever to try to work with your servicer if you are having mortgage problems – and if you are one of those who cannot afford your monthly mortgage payment, there are also workout options such as a short sale or deed-in-lieu of foreclosure where you could be eligible for a new mortgage loan in three years and in as little as two years depending on the circumstances.

If you are in the process of working with a loan officer to get a mortgage, chances are that you have heard about the HVCC rules for appraisals and how your loan officer “can’t talk with the appraiser”.

True, the HVCC rules are designed to stop the loan officers from speaking with the appraisers because in the past, the people who made the laws felt like too many times the loan officer “pressured” the appraiser into providing a higher-than-otherwise-would-be value for the home, and so the practice of loan officers talking to appraisers is now taboo.

But a simple way around this is for you the person who owns the home and is taking out the mortgage to speak directly with the appraiser.

When the appraiser comes by to inspect your home, make sure that you know the loan-to-value ratio and what your total loan amount are.

Make sure that he knows both of these numbers – because if he knows these two numbers, then he knows what the loan officer is estimating the value of the home to be.

And while this practice won’t help if your home is worth 50% of what the loan officer estimated, you may be surprised how many deals I have seen fall apart over a difference of $5,000 because the appraiser was in the dark about what the LTV and loan amount were. So while it isn’t perfect – it is the best thing that you as a borrower can do right now to ensure that you don’t get caught up in the HVCC nightmare.

How long, would you say, did it take for America to plunge itself into the economic shame spiral out of which we’re trying so desperately to climb? A year? Two? More like 8 years or so, by my count.

So, why … WHY is it that everyone, from the local janitor all the way up to national politicians, seems to expect a solution in the mere blink of an eye?

What this country is dealing with right now is an economic calamity of epic proportions. It’s not going to get fixed overnight. As much as I wish there was some magic fairy dust to throw at this situation (I can actually think of several things for which I’d use that at home), there simply is not.

Some will argue that the homebuyer tax credit was working to stimulate the economy. But was it? Really? I submit that it merely nudged buyers who were already considering a home purchase into buying sooner. Have you noticed that since the credits expired at the end of April, new housing starts have gone into free-fall?

Consumer confidence simply isn’t there.

Very telling is the fact that, right now, there are 30-year fixed mortgages out there with sub-5% interest rates … and homes still aren’t selling. Mortgage rates like that simply don’t exist; they’re the lowest that I’ve ever seen. But still, no one’s biting.

The fact is that until home prices return to levels that are considered sane — where they would be had the boom of the mid-2000s not happened — many people feel that buying a home simply isn’t a good investment right now. In fact, many experts have said that home values might — MIGHT — return to levels at which sellers could break even by as early as 2015, but in the so-called sand states — that’s California, Nevada, Arizona, and Florida — a return to peak prices could be as far off as 2025. That’s fifteen years, folks.

Fifteen. Years. A far cry from overnight, to be sure.

From my vantage point, this country (and much of the rest of the world) needs to take a major reality check. We need to stop focusing on quick fixes, because they simply don’t work. Not in the long term, anyway. We need to get real about the way we issue credit, the way we, as consumers, use that credit. Frankly, it’s something that we should think about when it comes to how we spend our money with other governments. But that’s another topic for another day.

People need to stop looking for the quick fix. People need to stop thinking that every slightly positive bit of activity means that we’re out of the woods. It doesn’t.

There are flowers and sunshine on the horizon, but we’re a long, long way from smelling them.