Fannie Mae, announced yesterday "policy changes designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure," according to PR Newswire. The company increased its penalty for strategic defaulters and for those who did not "complete a workout alternative in good faith" by making them ineligible for a new Fannie Mae-backed mortgage for seven years after the foreclosure. Such workout alternatives include loan modification, short sale, or deed-in-lieu of foreclosure.

Fannie Mae also announced to take "legal action" in order to regain the debt from borrowers who strategically default and will instruct servicers next month on how to monitor delinquent loans possibly facing foreclosure. How they will distinguish between borrowers who "walked away," meaning they were able to afford their mortgage payment but instead chose to strategically default, and those who had no choice but to foreclose will be interesting to see, if possible at all.

Fannie Mae, however, additionally states that it will be more understanding to borrowers with extenuating circumstances. If these borrowers work with their servicers to complete a foreclosure alternative, they are possibly "eligible for a new mortgage loan in three years and in as little as two years depending on the circumstances."

PR Newswire quotes 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." More information of this policy can be found here.

Tim Sheenhan of The Record wrote an article two weeks ago stating how strategic defaults were "losing their stigma," a very likely reason why Fannie Mae has decided to take action. He writes that although there are no set numbers of how many actually have walked away, a University of Chicago survey suggests that "about one-third of U.S. home mortgage defaults are strategic."

In a time when homeowners are frustrated with plummeting home values, Jon Maddux, chief executive officer of YouWalkAway.com, said, "Foreclosure is no longer the 'F-word.' There's much less stigma attached to it now." With Fannie Mae's new policy change, we shall see if this is still the case.

*Any information on all blog entries should not be construed as legal advice. If you have any legal issues, please consult an attorney.