Today in the LA Times there was an article titled: Strategic defaults on mortgages: The price we pay for the housing folly. They discussed strategic defaults and if the FHA’s threats would sway people from strategic defaulting. Here is an excerpt.
During debate last week on a bill (HR 5072) to shore up the Federal Housing Administration’s mortgage insurance program, the House decided to crack down on such “strategic defaults.” Lawmakers agreed to a proposal by Rep. Christopher Lee (R-N.Y.) to make those who strategically default ineligible for new FHA-insured loans. The ban sends the right message, but it’s not likely to make much of a difference to the borrowers mailing in their keys.
All I have to say is… so what. That probably is a good stance to take. I get it. I am a father of 2 kids and I understand why you punish for misbehavior, but I don’t think it will work. Just less than 3 years ago, Chase bank offered new purchase loans for homeowners 1 year out of foreclosure. Now, some credit unions and private lenders offer new purchase loans in as little as 6 months after foreclosure. In their eyes, it’s a loan against collateral and if the person doesn’t pay their loan payment, they get the house back. They require a decent size down payment, but isn’t that what “owning” is all about? I wouldn’t call having a home with ZERO equity “owning”. In fact, I think it’s pretty much worse than renting if your value is much less than you owe.
Yes, FHA is the biggest lender that does most of the lending right now, but shortly after values stabilize at a true housing bottom and start climbing again, lenders will be stupid to not lend to ex-homeowners with a down payment even 1 day out of foreclosure.
Check out the 4 things you should know if you want to buy again after strategically defaulting…
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Markedly well executed blog!!