FNMA recently increased to 7 years the length of time a borrower must wait before being considered for a Fannie Mae backed loan after defaulting on a mortgage they could otherwise afford. Apparently a reaction to the widely publicized actions of so called "strategic defaults" by borrowers. These are people who treat their purchase of real estate as an investment and decide to walk away from their homes even though they can afford the payments. Although Fannie Mae mostly holds loans under $500,000 and the above-guidelines only apply to FNMA loans, default rates for mortgages in excess of $1,000,000 are on the rise. It often makes good financial sense to abandon a property that is worth significantly less than the mortgage(s) that are recorded against it.
Strategic defaults aren't a good decision for everyone. As noted above, the consequences of default not only limit your ability to purchase a home in the future, but in Michigan a mortgage lender is able to pursue a deficiency judgment following foreclosure. Before choosing to default on any debt obligation, it is wise to consult with an attorney and a financial advisor.
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