A report released Oct. 17 from the Inspector General of the Federal Housing Finance Agency concluded that Fannie Mae and Freddie Mac must ramp up efforts to pursue borrowers who strategically defaulted on their loans.
The report stated that the government-sponsored enterprises’ recovery rate stood at 22 percent, which is equal to $4.7 million; the FHFA pool contains 35,321 delinquent loans that potentially could recoup around $2.1 billion.
However, the Office of the Inspector General noted that one big hurdle to pursuing strategic defaulters remained: the FHFA does not oversee the GSEs’ delinquent account management. As a result, there is no uniform standard for recovering losses from borrowers who defaulted despite their ability to pay. The report noted that many of these strategic defaulters are not primary homeowners, but rather vacation homeowners and investors.
The IG indicated that with more oversight from the FHFA, the GSEs could recover a significant amount of money. While Fannie Mae penalizes strategic defaulters by making them ineligible for securing a Fannie-backed mortgage for seven years, Freddie offers no such deterrent.
The report recommended that the FHFA include deficiency management in its oversight of the GSEs in order to get strategic defaulters to pay for deficiencies between what a home goes for at foreclosure and what the borrower actually owed on the mortgage.
The FHFA agreed with the report’s findings and recommendations, and has begun taking corrective action, including making deficiency management part of its supervisory strategy for the GSEs.
Read the FHFA report.