A few weeks ago I posted a blog re: Short Sale and Foreclosure. There has been some discussion regarding the true guidelines of a short sale as it relates to credit - first lien mortgage credit specifically.
It wasn't until a few months ago that short sales were even recognized as anything other than a foreclosure by FNMA. On June 25, 2008 FNMA issued a bulletin - Number 08-16 - calling them "Preforeclosure Sales". In that bulletin, it was stated that a new residential mortgage could be considered as soon as two years after completion vs four years.
BUT...here's the catch...
FNMA sets the "guidelines".
Investors make the "rules" that we must live by... or they don't buy the loans. These are the very same investors that are currently taking all those losses resulting from short sales, by the way!
Look at it this way. FNMA draws a line in the sand and says "Don't cross it". THEN it's up to the investors to determine how close they want to get to that line without going over it.
Now that FNMA has drawn the line at two years, over time investors might start edging closer to that line. But that is most likely not going to happen until after they have stopped licking their wounds from all the losses they have been forced to take.
BTW- government underwriting guidelines (FHA and VA) clearly state that Short Sales are to be viewed the same as foreclosures.
Views and opinions expressed on this site are not necessarily those of WR Starkey Mortgage.
Ruth Vogt, Branch Manager
Colorado LMB #LMB100023827
Wow! Pretty interesting stuff to watch as things unfold:)
Sounds discouraging, however, I know of a buyer who had a short sale two yrs ago that just got a loan. I guess if the income is good and credit history for the last 2 yrs is good, that outweighs the short sale.
So, are you saying that the credit report is going to have a "pre-foreclosure" indication? And this is less of a risk than a total foreclosure, even though they amounted to the exact same thing? I think the underwriters will view each equally.
I think the magnitude of the whole mortgage mess will be felt for years to come, 2 yrs to cleanse a credit score? I really doubt that will be the norm. Just my guess of course. Most likely it will be a case by case decision of lenders.
I can't speak on the issue of how it will affect the credit report. Only how investors are viewing them AT THIS TIME. And of course, if it doesn't show up on the credit report, and is not properly disclosed on the application, then the underwriter may unfortunately not have the full picture.
Sounds to me that the 4 years will stay in place unless the economy has a quick and substantial rebound.
geez...how confusing. 2 yrs minimum for FNMA, 4 yrs for FHA/VA, but all of those are better than having a bankruptcy, right? Have the time limits changed for bankruptcy?