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".
The 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.
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?