How are lenders going to deal with strategic defaults?

http://money.cnn.com/2010/05/28/real_estate/homebuying_after_foreclosure/index.htm

It’s here……We knew something like this was coming.

The number one question when speaking with distressed homeowners is: when can we buy again? The answer always has been: it depends on each homeowner’s situation. Because no one sitting on the opposite side of the lenders could really predict what the former would do in terms of reporting to the credit rating agencies. They obviously want you to know what they intend to do now.

Today’s news seems to indicate the lenders are putting potential homeowners who are contemplating “strategic defaults” on notice; a declaration of war, if you will. They will punish them by reporting their actions differently to credit rating agencies than those who have no option but to go through foreclosure, and lengthen the time it will take them to be able to purchase a home again by almost two-folds. They intend to punish them by affecting the only thing that matters to most folks: their credit rating or FICO scores and their ability to borrow money in the future.

That is what the lenders, or at least the Mortgage Bankers Association would like for you to believe. But as the article points out, the lenders want to mitigate their potential loss, but their desire to make money off mortgage interests – even from people who walked away - will trump their desire to punish them. In the end, it may just cost the strategic defaulter more down payment (30% or more) and higher interest rates than others who walked away.

This was just the first volley from the lenders and will certainly be adjusted in response to the number of strategic defaults with which they will have to deal. We will simply have to wait and see how they intend to streamline this process.