Walk away from your home, get a Fannie slap

LOS ANGELES - Taking aim at homeowners who are able to pay their mortgage but decide it's not worth it, Fannie Mae plans to go after them in court and to limit their access to home loans for seven years.

The government-controlled mortgage giant said Wednesday that it would instruct the companies servicing its loans to recommend when it should pursue a so-called deficiency judgment - a court order requiring a defaulting borrower to pay any remaining unpaid portion of the loan after a seized home is sold.

Fannie Mae also said that it would make new mortgages harder to obtain for borrowers if it can be proved that they engaged in a "strategic default" - abandoning a home to foreclosure not because the required payments are unaffordable but because the mortgage is larger than the value of the residence. For such a borrower, Fannie said that it would not buy or guarantee another home loan for seven years.

Borrowers who worked in good faith with their loan servicers to try to stay in their homes would be barred from Fannie loans for only two or three years, even if they eventually lost their homes after attempts at loan modifications failed.

The ban on getting a new Fannie loan is significant because home buyers have little choice these days for financing except for mortgages bought or backed by Fannie, its sister company Freddie Mac or the Federal Housing Administration. The three government-run entities financed 95 percent of new U.S. home loans last year.

Borrowers who default on FHA loans for any reason currently can't get another loan insured by the agency for three years. Legislation pending in Congress would impose a lifetime ban on FHA loans to borrowers determined to have made a strategic default.

Foreclosures continue at a rate of 2.5 million a year, Federal Deposit Insurance Corp. Chairwoman Sheila Bair said, and some 11 million households owe more on their mortgage than their home is worth.