As we informed our readers earlier this month, Fannie Mae announced new policy changes intended to deter financially competent homeowners from walking away from their mortgage obligation by imposing stiffer penalties for strategic default - a phenomenon that has become increasingly more common as home prices have plummeted and more and more borrowers find that they owe more on their mortgage than the home is worth.

What they said was that borrowers who intentionally default when they had the capacity to pay or those who do not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage for a period of seven years from the date of foreclosure.

Fannie Mae says the policy change is designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure. While a bold attempt at preventing unnecessary foreclosures, the analysts at Moody's Investors Service argue that Fannie Mae may encounter snags ahead since figuring out who to penalize for strategically walking away will be a significant challenge and implementing the policy could be difficult.

Previously, Fannie Mae barred homeowners who'd been foreclosed on from obtaining a new mortgage for five years. However, Fannie Mae's new policy extends the foreclosure-waiting period to seven years unless the borrower can prove that they faced extenuating circumstances when they defaulted on the loan.

For borrowers who can prove hardship or document that they attempted to contact their servicer to obtain a loan workout, the waiting period could be reduced to as little as three years. For borrowers who attempt to "gracefully exit" their mortgage obligation by means of a short sale or a deed in lieu may only have to wait two years to obtain a new Fannie Mae mortgage.

Moody's says Fannie Mae's latest step may increase awareness of the strategic default issue and may deter some borrowers who might be contemplating such a move, but there are definite hurdles to implementing such a policy.

In the first place, the ratings agency's analysts argue that there is no consensus on the precise definition of strategic default. Credit reports contain information on whether a borrower has defaulted but not why. In addition, income data are typically not reported by the credit bureaus and would have to be obtained from employer or tax records to determine whether a defaulting homeowner had the ability to continue payments or was forced into foreclosure by financial circumstances.

Even with access to all this information, Moody's says it may prove to be difficult to determine whether a borrower merely chose to renege on a mortgage obligation or acted in anticipation of a potential job loss or some other disruption to income. Some cases may be clear, but Moody's says that the majorities are likely to require costly review, and could be contested by borrowers in court. Further complicating the process, such reviews would have to be conducted retrospectively, several years after an initial foreclosure, when the borrower applied for a new loan, the analysts noted in recent commentary.

They say that the policy's effectiveness in deterring default will also depend on how other players in the housing market respond to Fannie's initiative. If strategic defaulters can still obtain loans from Freddie Mac, the Federal Housing Administration (FHA), or private lenders sooner than seven years after a foreclosure, Fannie's crackdown will have little impact.

According to the firm's analysts, without universal agreement about the penalties for strategic default, Fannie Mae's policy could actually reignite private subprime lending since strategic defaulters who are locked out of government loans, but have income, could give rise to an attractive niche market.

Because the staff at the Carman Law Firm has an extensive background in banking and financial services, we are able to thoroughly analyze your loan and your situation to legitimately plan a customized defense strategy that fits your goals. This is generally true whether you are still struggling to make your mortgage payments, are unable to pay, or are considering a strategic default.

There are so many rumors and so much misinformation floating around that it is impossible for homeowners to have a clear picture of what is going on and where they fit in, making it impossible for them to make good decisions without the guidance of a competent, experienced foreclosure defense attorney .

We do not charge for an initial consultation, so there is no cost for you to see if we can help.