Written by: Peter McCullough

A strategic default is when a homeowner walks away from their home when they owe more on the home than it is currently worth. In some circumstances, the homeowner can afford to make the mortgage payments, but due to the decreased value of the home under the current market conditions, they feel it is a financially sound maneuver simply to leave their home behind and rent or try to find another home which has also lost value.

Thousands of homeowners have strategically defaulted on their homes and have left the mortgage company holding the bag. The mortgage company now has an asset for which they do not have a revenue stream. Plus, the property is now a liability because the mortgage company is obligated to maintain the property so that adjacent homes do not further lose value.

Due to the enactment of new Fannie Mae regulations, a strategic default will now have more severe consequences for the homeowner than in the past. Starting in July, Fannie Mae has indicated that they will no longer guarantee loans to homeowners who walk away from their mortgages for a seven year period. It will also attempt, where legally possible, to force the homeowner to pay for losses incurred through the default.

However, if a homeowner makes an attempt to work with a mortgage company through a short sale or by obtaining a deed in lieu of foreclosure, Fannie Mae has indicated that they would be willing to offer new loans within a two year period.

If the homeowner can demonstrate hardship, Fannie Mae will be willing to offer new loans, loan modifications or short sales to help the homeowner.

Real estate agents should view this as an opportunity to help homeowners through difficult financial times. Count on the fact that a homeowner will be eternally grateful and more likely to provide referrals if the efforts of an agent help them keep their home.