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Watch out: yesterday a new report was released by the Federal Housing Finance Agency (FNFA) that finds mortgage bank agencies Fannie Mae and Freddie Mac  could increase their revenue by aggressively going after collection of deficiencies on home loans and on deficiency judgments.  Apparently, when they looked at the numbers, they found that only 0.2% of the deficiencies on the Fannie Mae and Freddie Mac accounts were collected in 2011.

That’s right: the federal government is pushing for deficiencies in mortgages to be pursued by banks, and since Fannie Mae and Freddie Mac mortgages make up around 80% of Florida home loans, that’s big news for Florida home owners either in a short sale situation, facing foreclosure, considering a default, or ones already dealing with a deficiency lawsuit or judgment.

From the FNFA’s Inspector General’s Report (page 15), this conclusion:

Given a recovery rate of 0.22%, the Enterprises appear to have room for improvement in how they manage their deficiencies. Further, with 1.1 million seriously delinquent mortgages looming on the foreclosure horizon—triple the Enterprises’ foreclosures in 2011—FHFA’s timely guidance on deficiency management processes may help the Enterprises recoup future losses and protect taxpayers’ investment in their financial health.

Of particular interest in the federal report, those deficiencies that result from mortgages on places like second homes or vacation condos where the borrower may have the means to pay the deficiency – or indeed the mortgage – but has financially strategized that it is savvy to let the place go back to the bank since the fair market value of the property is so much lower than the bank note.  FHFA appears to be very interested in targeting these borrowers (which they label “strategic defaulters”) for collection efforts (page 14):

Recovering losses from strategic defaulters and others who have the ability to repay their financial obligations—e.g., real estate investors and vacation home owners—presents an opportunity for the Enterprises to strengthen their financial positions and to reduce the need for future taxpayer support. As conservator, FHFA is responsible for preserving and conserving the Enterprises’ assets and restoring them to a sound financial condition. Accordingly, FHFA should obtain information necessary to better understand the Enterprises’ deficiency activities and to determine where improvements can be made.

Larry Tolchinsky’s Tip:

Fannie Mae and Freddie Mac are the two government sponsored enterprises (GSEs) referenced as the “Enterprises” in the FHFA Report.  These two companies were taken over by the federal government in September 2008 during that year’s housing crisis and placed under the conservatorship of FHFA.  So, what FHFA says in its report isn’t a suggestion – it’s a directive.

There are those (like the Wall Street Journal) that are reading this report and reporting that this may not end up with aggressive collection efforts but given the report’s own admission that increasing the efforts means more money into the federal coffers, well – you be the judge.

Remember: in a short sale or loan modification, what happens to the deficiency as well as how the deal is reported to the credit reporting agencies is a matter that is up for negotiation.  Having a strong foreclosure defense attorney or experienced short sale lawyer with you at the negotiation table with your bank and its representatives can make a big difference.

Expect for there to be more collection efforts – including lawsuits – to pursue the balances that remain on mortgages after the foreclosure or short sale now that this report has been released.  That’s gonna happen.

Also, it’s likely that deficiencies are going to become more and more organized into two camps: the ones where the borrower / home owner was (or is) suffering a financial hardship and the ones where the borrower / home owner cannot establish a financial hardship.   What constitutes a “financial hardship” to the bank?  That’s up for discussion.

Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at, or (954) 458-8655.  If you have a specific situation, please call or email Larry because he can’t answer specific fact questions in general comments.  He’s happy to take your call.

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