Fannie Mae announced on June 25, 2008 that seasoning for a short sale is now two years versus five years for foreclosure. Here's the announcement:
Here's the pertinent section:
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Establishing a new policy for preforeclosure [short] sales. A preforeclosure sale involves the sale of the property by the borrower to a third party for less than the amount owed to satisfy the delinquent mortgage, as agreed to by the lender, investor, and mortgage insurer. Due to the increased incidence of preforeclosure sales, Fannie Mae is establishing a 2-year elapsed time period for reestablishing credit following completion of the action.
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Why has Fannie done this? Because short sales are currently net80-82% of Fair Market Value to Fannie--which is more than Fannie gets from an REO sale, not to mention that by the time the property goes to foreclosure, it's worth far less in most areas of the country and has sometimes been vandalized.
To ensure that the former homeowner is ready to purchase again in two years, s/he should pay all their other debts on time and use no more than 50% credit capacity on credit cards.
According to the Mortgage Debt Forgiveness Act of 2007, the amount of mortgage deficiency (known as "phantom income") will be forgiven if the house is owner occupied. (No break to investors.)
The derog will be reported to the bureaus as Score Factor Code #22--"serious delinquency, derogatory public record or collection." There is no other "reason code" that lenders can use to characterize the activity of a defaulted mortgage. “Default” occurs when the borrower does not pay as agreed.
Depending on the consumer's utilization of other debt, the hit to his FICO could be less than 100 points. Here's a post from another forum where the borrower orchestrated his own short sale at OCWEN and Washington Mutual.
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In March I had my credit checked when I applied for the loan on the new house. I was at 778 and the approval was conditional on us selling the CA home before we could close. We are now partially moved into the new house in South Carolina, waiting on carpet before we can move in the rest. Both Ocwen and WaMu have reported to the credit bureaus. It shows up from both as "ACCOUNT PAID IN FULL FOR LESS THAN FULL BALANCE". My credit score is now 714, for a total loss of just 64 points. Well worth it to me, I still have excellent credit and I don't own a house with -40% equity. I have received letters from both WaMu and Ocwen saying that the accounts are closed and it's a done deal. Thanks to that and the Mortgage Debt Forgiveness Act of 2007, I can sleep well at night now
I was not successful in asking either lender to not report against my credit. I do have the friends that were able to and have heard of a few other cases where that was possible. All of them were with people behind on payments. In case anyone missed it, I never missed a payment to either lender. There is no law requiring lenders to report, I didn't push too hard because I knew I had been extremely lucky to get the deal approved and didn't want to risk ticking anyone off.
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