My New Outside Blog: Freddie Mac to Strategic Defaulters "Please do not do it"

Freddie Mac to Strategic Defaulters "Please do not do it"

www.lasvegasmtg.com report: In a recent article from Wall Street Journal article written by Nick Timiraos it is reported that Freddie Mac has a message for homeowners who could pay their mortgage but have decided not to "Please do not default".

Housing collapseThe problem that Freddie Mac and other investors have is many states in the country are a non recourse loans State. What is a non recourse Loan you say? Well it means the borrower can't be held liable for the default of the debt! Nevada is not a non recourse state so they can and will try to collect the debt. Tos see a list of Non Recourse and Recourse states.

Donald Bisenius who is the head of Freddie Mac single family credit guarantee business wrote in the Freddie Mac blog this argument on those that are thinking of a Strategic Default. You are going to hurt your Friends and neighbors because everyone knows that the only reason that property values have declined has been due to vacant properties. With every Strategic Default is going to rob the wealth of your friends and the ripple effect will further hurt the communities.

Donald Bisenius added this argument that the communities hit hardest will face tougher rules and higher costs in the future. Ultimately Freddie Mac realizes that Strategic Defaults are on the rise and the trend is going higher. The rise in Prime Jumbo's Strategic Defaults has increased 40% since 2007.

Donald in his blog extolled these words of advise to those that can pay the payment but are deeply underwater "just hold on till the values go back up!" The problem with this advise is even Freddie Mac thinks that values will continue to decline further in 2010.

Freddie Mac has outlined 4 risk to the housing Market in another article: Why Freddie Mac Sees Home Prices Falling

1) Freddie Mac sees a wave of new foreclosures due to the Obama's policy of moratorium to try to halt foreclosures and through the HAMP loan programs will ultimately result in new REO properties. With a larger inventory of banked owned properties this will bring prices down.

2) The April 30th Tax Credit expiring will create less demand.

3) Interest rates rising in 2010 will make homes more costly and remove a greater pool of eligible home buyers.

4) Lastly unemployment rate will still remain high in the near future.

Housing collapse

With this information on declining values that Freddie Mac is predicting, does Donald Bisenius still feel that the advise to wait until prices go up is sound advise or is it self serving to stop the tide of Strategic Defaults?

         Kenny Salame                                                                                                  Equal Housing

Kenny Salame
Senior Loan Officer
All Western Mortgage Inc.
8345 W. Sunset Rd.
Suite 380
Las Vegas, NV, 89113
US                            
Mobile: 702--506-3301
Direct: 702-947-0609
Office: 702-369-0905
Fax: 702-952-0887
ksalame@allwesterm.com
 
 
 
 
 
 
Comment balloon 14 commentsKenny Salame • May 06 2010 09:42PM

Comments

You are right - Nevada is a recourse state. I wasn't really happy about that until today. The 9 states that are non-recourse states are enabling the strategic defaults which are universally making the market weaker and prolonging the downturn. Makes me sick.

Posted by Christianne O'Malley, Exceptional Service - Delivering Results in Reno! (RE/MAX Realty Affiliates) over 8 years ago

What really made the market "weaker" and what really pushed the homebuyer over the cliff were the 'stratgic defaults' of the big boys back in 2008, and the years leading up to.  Oh, I suppose the bundled toxic loans sold as A paper to unsuspecting investors had nothing to do with it? 

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) over 8 years ago

Christianne,

With so many home owners underwater and with no long term future for a recovery some people see the strategic defaults as making sense. If banks, and business can make the same choices on walking away which is done all the time, then they lose the moral argument that homeowners should not do as they do. 

Posted by Kenny Salame, NMLS ID 313873 (All Western Mortgage Broker # 14210) over 8 years ago

John, it's interesting to read your post about Freddie Mac's recommendations.  The 60 Minutes piece yesterday was quite instructive and did give insight to what big banks and other institutions have been doing for sometime.  However, I am not of the opinion that this is ultimately in our best interest in the long term.  This trend as well as other poor economic policies has significantly weakened our economic standing in the world and therefore our influence. Ultimately, we are all impacted by our collective actions.

Posted by Lola Audu, Audu Real Estate~Grand Rapids, MI ~Welcome Home! (Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate) over 8 years ago

The corporate world is disingenuous giving this advice. From Lehmann Brothers to Goldman Sachs to Freddie and Fannie they can beg and plead, but they do not have amoral high ground to function from. They don't want these defaults, they lower the principle, it will be cheaper in the long run.

Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) over 8 years ago

This is spot on, every "strategic default" is causing two more in some areas; it is a death spiral. It is just plain ignorant for someone to walk away today. In most cases they could probably stay for free for a long period of time, and get paid to relocate....if they have no moral obligation to the bank they sure as heck should to their friends and neighbors

Posted by Anonymous over 8 years ago

This is the problem with artificially propping up the market through tax credits and HAMP plans. Let the market correct itself! Why is that so hard to understand?! You failed to regulate the bankers and lawmakers, so own up to it and let the markets fall during your term so that it can go back up later on.

Posted by Phi Vo (Go Insurance Rates) over 8 years ago
I m not sure what I would do if I was so upside down !!!!!!!!!!!!!!!!!!!
Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) over 8 years ago

One could argue that homeowners wouldn't be as upside down if the banks (encouraged by the government) weren't giving everybody with a pulse a loan. There would have been a smaller buyer pool so prices wouldn't have risen so high so fast. It could be argued that if a person bought in 2003, 2004, 2005 time, that they over paid for the house they're currently in, and that they overpaid because the banks inflated the prices by increasing the buyer pool.

It's hard to pass judgment on a person who has a $300K loan on a house worth $200K and dropping. If that person sticks it out and 5 years from now his ex neighbors who lost their houses are sitting in nicer houses with smaller payments and he has to borrow to send his kid to college- he just may look back and kick himself.

On the other hand- I've been in the same house for over 15 years and was 30% down. I actually have some equity. But I'm an independent contractor and live on a farm- I'm paying 9 1/2% interest on my mortgage. It can be irksome to hear about someone modifying their loan to 2%. Or walking from their current home and buying in 3 years for a much lower interest rate than mine. But on the third hand- I can't blame them. 

Posted by Jackie Hawley, Southeast Michigan Real Estate (Coldwell Banker Professionals) over 8 years ago

Carla,

Many people have decided that if they walk away they would be better off and wait two to three years and buy again as prices will probably be not much higher then where we are now.

Lola,

I did not see the 60 minutes episode on this problem, but I do know that the rise in Strategic Defaults is due to the loss of the stigma that once existed  on Strategic Defaults. It is the mentality that everyone else is doing it so why not me.

Joe,

You are right that the corporate world sees no responsibility to anyone except the stock holders. The believe that its also someones Else's responsibility.

Phi,

It is easy to blame HAMP or TARP and the bailouts as the cause of the problem. In truth without the bailouts things would have been much worst then the 9.7% unemployment rate and the current foreclosure and strategic defaults we have now.

Michael,

We have speculated on everything in life from collectibles to stocks and we treat the home as an investment instead of a home to raise a family.

 

 

Posted by Kenny Salame, NMLS ID 313873 (All Western Mortgage Broker # 14210) over 8 years ago

You are going to hurt your Friends and neighbors because everyone knows that the only reason that property values have declined has been due to vacant properties. With every Strategic Default is going to rob the wealth of your friends and the ripple effect will further hurt the communities.

Does he honestly think a family that may have suffered a hardship even still scraping up the money to pay that mortgage cares. They may feel bad about it but they will do what is best for their family. If Freddie Mac wasn't supported by the government and they had financial troubles they wouldn't hesitate to close their doors. What about their investors? They wouldn't care.

Posted by Cameron Wilson, The Short Guy - Murrieta,Temecula,Menifee Californ (Labrum Real Estate) over 8 years ago

It's too bad Freddie Mac didn't step up when fraudulent loans were being funded and stop it then. It's really a little late for a pep talk, don't you think?

Posted by Sharon Alters, Realtor - Homes for Sale Fleming Island FL (Coldwell Banker Vanguard Realty - 904-673-2308) over 8 years ago

Freddie Mac can ask people not to walk away, but I'm afraid it's going to continue to happen as long as people are so upside down, especially in non-recourse states.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 8 years ago

In a recent statement from Fannie Mae that they will need another $10 Billion in tax dollars or they will be in default! Does the government pay another installment to keep them from failing? This is like watching a favorite movie of mine "The Money Pit" except it is not funny.

Posted by Kenny Salame, NMLS ID 313873 (All Western Mortgage Broker # 14210) over 8 years ago

Participate