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Sacramento Short Sales: A Response from Freddie Mac
What effect will “short sales” have on a borrower’s credit and ability to secure another home loan? Without the public Notice of Default that precedes a foreclosure and notifies the credit bureaus, will “short sales” slip under the radar? Are they less onerous than a completed foreclosure as many people suggest?
In my earlier post Short Sales vs. Foreclosures….Your Credit Will Suck Either Way, I summarized the initial responses to the questions I had run up the capital markets flagpole.
Yesterday, I received this answer from Freddie Mac about the way Loan Prospector, its automated underwriting system, will react to the typical short sale comments found on a borrower’s credit report. The answer was obtained for me by Scott St. John, an officer of American Pacific Mortgage who serves on the advisory board for Freddie Mac.
Marc,
Below is a a response from an email I got last night from a Senior VP of Operations/ LP Management about the scoring model for short sales. See below:“ …I wanted to get back to you regarding your question about if current AUS scoring factors in a borrower that has “Settled” a prior mortgage debt through a short sale and then re-applies for a new mortgage on a new property. You mentioned that an underwriter can spot this scenario on a credit report because there is the word “Settled” or the letter “S” that shows the prior debt involved a short sale or negotiated settlement.
I have confirmed that the LP assessment takes into consideration reported adverse action in the credit in- files.”
All my best,
-Scott
What does all this mean? Well, “Settled” is the notation your lender will put on your credit report after your short-sale. The rest of that paragraph means that when qualifying for a mortgage after you’ve been through a short-sale, the Automated Underwriting System (AUS) used universally today will clearly see the short-sale, and it will respond the same way it does to a completed foreclosure.
A short-sale may still make for you. But don’t go into it thinking that it’s better for your credit.
November 27th, 2007 at 11:14 pm
[…] I wrote a couple of articles awhile back entitled, Short Sales vs. Foreclosures…Your Credit Will Suck Either Way and Short Sales and Loan Prospector: A Response From Freddie Mac. At the time–nearly a year ago–my preliminary investigation suggested that short sales and foreclosures would have exactly the same effect on credit. But back then, this issue was just reclaiming the spotlight, and no one had really given it much thought. You see, it has been 10 years since we’ve really seen this problem. Those articles are still garnering comments, and I’ve been getting daily phone calls and emails from all over the country from people facing foreclosure. So recently I reopened the investigation. And although the issue is far from clear, my conviction is the same. A short sale won’t leave your credit in better shape than a foreclosure. And it could hurt you from a tax standpoint. […]