Sunday, April 13, 2008

Pretty Damn Merciful

Not really all that big of a deal, actually.

No mercy shown for those who flee mortgage loans

KENNETH R. HARNEY | Washington Post Writers Group
April 13, 2008

WASHINGTON—The country's two largest sources of mortgage money have a blunt warning for anyone thinking about joining the "walkaway" trend, where homeowners stop making payments and months later send the house keys to their lender: You will feel the pain.

On March 31, Fannie Mae sent out new guidelines to lenders aimed at walkaways and other foreclosure situations. Fannie will prohibit foreclosed borrowers from getting another mortgage through it for five years, unless there are "documented extenuating circumstances." In those cases, the prohibition is three years.

Even after five years, borrowers with foreclosures in their files will have to put at least 10 percent down and need minimum FICO credit scores of 680.

Somewhat tangential to a question asked of him (I forget what) at Eschacon, Krugman commented that defaulting on their creditors was painful for a couple of years for Argentina and then everything started going quite nicely again, with people still willing to lend them money.

A bit later I remarked that the Argentina model would also be the case for people walking away from mortgages. It'll be a pain for a couple of years, and then everything would revert back to normal. Fannie's "no mercy" isn't exactly harsh punishment.