Fannie Mae gives incentive to short sale homes over foreclose

Fannie Mae releases new rules

In an effort to help distressed homeowners avoid foreclosure, effective July 2010, troubled homeowners that opt to voluntarily release their homes through a “deed in lieu of foreclosure” or by completing a short sale will now be eligible to apply for another Fannie Mae backed loan in two years.

In 2008, the waiting period was reduced from five years to four and now is at two. After that two year period, to qualify, a minimum 20% down payment will be required unless there are “extenuating circumstances” such as job loss, according to The Wall Street Journal.

Doesn’t this encourage people to walk away?

Critics of the move call this an encouragement for homeowners to walk away from their homes, putting the real estate sector back in jeopardy similarly to the continuing subprime crisis.

“We don’t want to say that there’s a ‘get out of jail’ card during recessions to walk away from your house,” FHA Commissioner David Stevens told the Wall Street Journal. “We are beginning to think about post-recession, how you address borrowers who became unemployed through no fault of their own … and now deserve the right to re-enter the housing-finance system.”

Fannie Mae counterpart, Freddie Mac still requires a four year wait, but if the Fannie Mae program is successful in curbing foreclosures, perhaps Freddie Mac will follow suit.

CC Licensed image courtesy of thetruthabout via Flickr.com.