Two from today’s papers

From today’s Washington Post, here’s Kenneth Harney on new Fannie and Freddie rules governing their upcoming mass refinancing campaigns. An excerpt:

To make their programs as widely accessible as possible, Fannie and Freddie’s instructions offer a variety of concessions. On top of the list are credit scores. Both companies plan to waive their usual minimum borrower credit score requirements for most applicants. Participating lenders will still pull your scores and credit files, but generally there’s no specific cutoff point below which you’ll be rejected.

Equally important for some highly leveraged homeowners, the companies are setting no limits on the amounts of existing second mortgages or home-equity-line balances, as long as the secondary loan creditors agree to re-subordinate their liens behind the new Fannie- or Freddie-funded mortgage.

From today’s New York Times, an article noting that walking away from you home, though fraught with moral hazard, may not have as many consequences as some may think.  An excerpt:

Perhaps you no longer have enough income to pay your loans. Or you can afford the payments but don’t qualify for refinancing under the new plan because the value of your home is too far below the balance of the loan. If you’re far enough underwater, you’re probably questioning the wisdom of writing a monthly check on a place that may take 10 or 15 years to get back to the value it had two or three years ago. It isn’t easy to come up with the answer, and if you have moral misgivings about not making good on your mortgage, a religious officiant may offer as much useful guidance as a financial planner.

In an economic environment like this one, however, the consequences of giving up on your mortgage may not be as painful as they were a few years ago. Yes, it’s almost always preferable to negotiate a better deal on your existing mortgage than to walk away. But if you can’t work things out with your lender, you probably won’t be sued. You shouldn’t receive a major tax bill either. And the damage to your credit will not be permanent or insurmountable.

Disclaimer: Just because I’m pointing you to the NYT article directly above doesn’t mean that I endorse the ethically questionable practice of folks’ walking away from from their mortgage.  I don’t. Just wanted to get that straight before the conclusion-jumpers filled up my in-box.

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One Response to Two from today’s papers

  1. At one point, after “repeated, good-faith attempts” to work with our mortgage lender when we had to move and couldn’t sell, my wife and I considered walking away. (I justified the ethical issue by the bank’s attitude toward us.)

    Even forgetting the ethical side, though, in Virginia the law is pretty clear: You can walk away, but you’re gonna owe the bank the difference between what you owe and what the house eventually sells for. And they can come after you — liens, garnishment, probably guys with mirrored sunglasses.

    So there really is no “walking away” — unless, perhaps, you’ve got a lawyer who can work magic. But in the Old Dominion that’s not likely.

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