Do you know someone who purposely defaulted on his mortgage even though he had the ability to pay it? Perhaps this person did not want to waste his hard-earned income on mortgage payments but instead saved up for a cruise to the Bahamas. Or maybe this person owed more than he originally paid for the home and did not want to continue paying it any longer. Whatever the reason, this person is not alone. There are thousands of these “strategic defaulters” in the United States, many of whom get away with not paying deficiencies because Fannie Mae and Freddie Mac have been lax in pursuing them.

Fannie Mae and Freddie Mac are supposed to evaluate every defaulter’s ability to repay the past due amount on their mortgages. Even after foreclosure, these two government-sponsored enterprises and many other lenders can still go after borrowers with deficiency judgments.

However, according to the recent report from the Office of the Inspector General at the Federal Housing Finance Agency (FHFA), Freddie Mac did not evaluate nearly 58,000 foreclosures for deficiency collectability. That is $4.6 billion that went unchecked and could have at least partially been recovered by Freddie Mac. Thousands of strategic defaulters were set free of the past due amounts that they owed on their mortgages.

The Office of the Inspector General is rightfully horrified by these numbers and is fiercely recommending the FHFA to oversee Freddie Mac’s deficiency recovery strategies to ensure that these strategies become efficient and effective in the near future. The fact that so many have gotten away with this practice in the past few years only encourages more to do so.

No longer should strategic defaulters get away with robbery.

In a separate recent report, the Office of the Inspector General recommends the FHFA to closely oversee Fannie Mae’s deficiency recovery strategies as well. From January 2010 to June 2012, Fannie Mae did not pursue deficiencies in 29,692 foreclosures because the states’ statutes of limitation for pursuing these deficiencies had expired or were about to expire. Fannie Mae is in a better position than Freddie Mac in terms of collecting on deficient judgments, but it can still drastically improve its methods so that it can obtain deficiencies even in states with short deadlines for filing claims.

If you have a loan insured by Fannie Mae or Freddie Mac and you strategically defaulted on your mortgage, watch out. The two enterprises will not be lax any longer.

Thank you to Lieb at Law's Assistant Case Manager, Jessica Vogele, for sharing this valuable information. 

Are you currently applying for a HAMP loan modification? Then good news! If you are granted a HAMP trial period or permanent loan modification on or after March 1, 2014, you may have access to free financial counseling from your servicer!

Currently, Section 6.7 of Chapter II of the MHA Handbook, only borrowers with a total debt-to-income ratio of 55 percent are required to obtain HUD-approved financial counseling when they are approved for a Home Affordable Modification Program (HAMP) modification. These borrowers are at high risk of defaulting because they use over half of income just to satisfy their debts and have little income left over every month. It makes sense that these high-risk borrowers are required to speak with a counselor, but under this Section of the MHA Handbook, they are the only ones required to receive such counseling.

Now, under the Supplemental Directive 13-08, servicers must offer financial counseling to borrowers who have been granted a HAMP trial period plan or permanent modification regardless of the total debt-to-income ratio. More borrowers than ever before will now have access to free financial counseling from their servicers, provided that their servicers participate in HAMP, and either have enough money for HAMP ($75 million or more) or voluntarily choose to follow Supplemental Directive 13-08. This Supplemental Directive is effective March 1, 2014 and does not apply to loans that are owned, insured, or guaranteed by Fannie Mae, Freddie Mac, Veterans Administration, the Department of Agriculture’s Rural Housing Service (RHS), or the Federal Housing Administration (FHA). Even so, this Supplemental Directive will apply to many mortgage loans and affect millions of people who have been approved of a HAMP trial period or HAMP permanent modification.

The purpose of the financial counseling is to ensure that the borrowers are able to successfully complete their trial period plans and afford their permanent modified payments. Even borrowers who have already received a HAMP permanent modification before March 1, 2014 can receive financial counseling if they are at a high risk of default or believe they will be at risk in the future. It is an exciting opportunity for borrowers to receive free financial counseling from their servicers and for servicers to receive consistent monthly payments from every borrower who has received a HAMP modification.

Thank you to Lieb at Law's Assistant Case Manager, Jessica Vogele, for sharing this valuable information.