Cattle, Sheep. Goats, go ahead and pick your favorite.  You are a now a piece of livestock in the eyes of Fannie Mae and Freddie Mac.

And you thought you were just another number?

As the pressure mounts for more and more homeowners, it's no surprise that  Foreclosure Rates have risen.

Yesterday, Bloomberg News reported that,

"U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier as adjustable mortgages increased and more owners gave up their homes to lenders."

From the mouths of Lenders (thanks to Calculated Risk),

Don Truslow, Wachovia Corporation - SEVP, Chief Risk Officer

"Ken, that's exactly right. And Kevin, it's just this pattern almost that somewhere -- I don't know where the tipping point is, but somewhere when a borrower crosses the 100% loan to value, somewhere north of that and they presumably run into some sort of cash flow bump, whether it's reduced income or kind of normal things in life that have created past dues before,  their propensity to just default and stop paying their mortgage rises dramatically and I mean really accelerates up and it's almost regardless of how they scored, say, on FICO or other kinds of character, credit characteristics."

Dowd Ritter, Regions Financial Corp. - CEO & President:

"I would tell you that in a few of those that you saw us basically write off, we did not write them down, and because some of those -- they did have firsts, but there are cases where people as early as 18 to 24 months ago had one value on that property, and as they started to sell it or refinance it, they realize that valuation was 40% below what it was 18 to 24 months ago, and they're walking away from those homes in those markets."

What we're talking about is a

Realized Fear of Herd Mentality

Make no mistake, the lenders are worried.  This has moved up the food chain to Fannie Mae and Freddie Mac who came out with new guidelines for those wishing to finance in the future with a Foreclosure on their record.

As more and more people "walk away" from their homes, it becomes easier for the next person to make the same decision.

Herd Mentality

Cutting to the chase (a herding term) Fannie is saying to homeowners,

If you Walk Away today we're going to punish you tomorrow.  We will now prohibit foreclosed borrowers from getting another mortgage for Five Years!

And even after that five year period is up, we're going to require you come in with at least 10% down. 

Oh and we want you to have a really good credit score too.  Better have better than a 680 FICO."

Five years isn't so long is it?  Doesn't a foreclosure drop off your credit after a few years?

Foreclosure is Forever. 

Remember, on the loan application is a cute little box for you to check Yes or No.

Check the YES Box and your loan application jumps out of the Automated Underwriting line (easier approval process) and is pulled into the black hole that sometimes is Manual Underwriting.

This makes it all that much more important for homeowners in trouble to fully examine all their options.  For instance, by going through the "hassle" of a Short Sale, you'll avoid the Foreclosure Label.

I see that as a big positive in an otherwise negative situation.  "I'm never going to own a home again!"

Who knows what the future holds?  What if Grandma passes away and gives you her home?  What if she had a reverse mortgage on that bungalow?  Now what are you going to do?

By the way:  Not checking the Yes box (with a foreclosure in your distant past) is grounds for Fraud. 

"Mommy, why are they taking Daddy away?"

"Daddy was a very bad man, he checked the wrong box!"