Fannie To Allow Walkaways By On Time Borrowers

This move continues the trend at Fannie and Freddie to allow on time folks some options previously reserved for people who stopped paying - a great move that rewards good behavior. We can expect banks to follow with similar program.

This measure - deeding the property back to the bank - has been around for a long time. Called a deed in lieu of foreclosure ( I've done many of them for banks). But to work there can be no other liens and the bank has to agree to pay the transfer tax which can be expensive.

We can expect lots of folks to seek this new program since the mortgage debt relief act was extended in dec until the end of the year. Once that expires people may have to pay income tax on the amount of debt the bank forgives (in the car of a deed in lieu that would be the difference between what's owed and the current value of the property)

This is a viable option for people under water (estimated 7 million) who can't afford their payments and can't seem to sell their property by short sale

Critics have already said Fannie and Freddie can't afford to be this generous but in truth in many of these cases they'll save money over having to foreclose.

The making home affordable Hafa (home affordable foreclosure alternative) program has been around several years and included a deed in lieu program without much success. They're calling this new program a mortgage release instead

The question is will this encourage some people who may have stuck it out to walk instead

Shari Olefson's picture
Shari Olefson

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