They’re back, they’re mad and on the hunt for strategic defaulters. We wrote about the OIG “mortgage cops” about a year ago; sounds like they’re back at it. Fannie and Freddie have been tasked to collect unpaid mortgage debt from “strategic defaulters,” those underwater home owners who skipped out on their mortgages even though they had the ability to pay. If a home is sold at foreclosure but the proceeds don’t cover the outstanding balance of the home owner’s loan, the mortgage giants can pursue judgments against the home owner forcing him or her to pay the deficiency. And the Federal Housing Finance Agency, which regulates Fannie and Freddie, is pushing them to step up their efforts to do just that.
According to the report by the inspector general’s office criticizing Freddie Mac’s lax practices, the company has left billions on the table. The report found that Freddie Mac, which has received some $71 billion in taxpayer assistance since it was taken into conservatorship by the FHFA in September 2008, did not refer nearly 58,000 foreclosures with estimated deficiencies of some $4.6 billion for collection by its vendors. As of December, the big secondary mortgage market company had nearly 50,000 foreclosures still on its books, carrying a value of some $4.3 billion. And as of March 31, it held 364,000 mortgages that were 60 days or more delinquent and were, therefore, likely foreclosure candidates.
Fannie Mae’s portfolio of troubled assets is much larger. At the end of last year, it owned more than 105,000 foreclosed properties valued at $9.5 billion and carried a “substantial” shadow inventory of 576,000 seriously delinquent mortgages that were 90 days late or more and likely to end up in foreclosure. Fannie Mae earned a slap on the wrist for not taking any action on nearly 30,000 accounts because statutes of limitation had expired or were about to. For the same reason, the report says, it failed to pursue deficiencies of some 15,000 accounts that already had been reviewed for collection by its vendors.
The FHFA says Fannie and Freddie haven’t been aggressive enough in going after strategic defaulters, and the inspector general’s office notes that the GSEs could cut their losses by making it more of a priority. The inspector general’s office estimates that Fannie and Freddie could recoup billions of dollars if they made strategic defaulters pay up. So far, the office has found that Freddie Mac did not refer 58,000 foreclosures — estimated deficiencies of $4.6 billion — for collection.
The FHFA criticized the GSEs for failing to even attempt to pursue former homeowners for deficiencies after their homes were sold in the wake of foreclosure, estimating that about 58,000 foreclosures with estimated deficiencies were simply abandoned – at a cost of some $4.6 billion. Although many of those foreclosures were likely the result of true financial hardship, “not going after defaulters where it is permissible to do so not only reduces the chances of recovering potentially billions [but]…incentivizes other borrowers to walk away from mortgages they can afford to pay,” said the FHFA.
Some states do not allow deficiency judgments, but in more than 30 states and the District of Columbia, they are permissible. The FHFA says it will more closely monitor how effective Fannie Mae and Freddie Mac are in collecting deficiency judgments.
We have many posts on strategic default and about the ability for lenders to pursue deficiency judgments, they might be worth a look. Of course if you find yourself in this position, speaking with an experienced attorney is a must to ensure a complete understanding of GA law. If you’re contemplating foreclosure or short sale, drop us an email as HMT works closely with Windward Law Group to help owners navigate the short sale process in GA. See the full article referenced here.