[SoCalGal]

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:

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.

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.

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.

[877YouKeep]

I think you are missing something here, there was no 5 year seasoning on short sales for Fannie. The only seasoning issues I am aware of is the seasoning required before a home can be sold to a buyer that is requiring a mortgage. Short sale are out of control.

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[lisannem]

This will just make things worse. There were no time requirements for someone to purchase a home after a short sale before. Just another example of Fannie and Freddie tightening lending requirements and making the situation worse.

[SoCalGal]

I think you are missing something here, there was no 5 year seasoning on short sales for Fannie.

I'm not missing anything. The seasoning period for the following events was four years:

Foreclosure
Short Sale
Deed-in-lieu
NOD
120+ days late
Forbearance
Bankruptcy

Then seasoning was raised to five years for foreclosure and deed-in-lieu.

Then they plucked short sale out of that bunch and lowered seasoning for short sale only to two years.

If you think otherwise, please provide a credible citation. Thanks.

[SoCalGal]

There were no time requirements for someone to purchase a home after a short sale before.

Please post a credible citation, such as an excerpt from Fannie Mae's guidelines, for your belief that short sale never had a seasoning requirement.

Surely you don't think that a lender would allow someone to terminate a loan for less than payment in full, only to turn around and borrow again as if the short sale never happened.

The persistent belief by some that short sale was somehow better than foreclosure was and is completely false.

[SoCalGal]

The same applies to Freddie Mac. This guideline applies to qualifying for a new mortgage.

X, 803.02: Payment History (06/30/02) [superceded by Fannie announcement dated June 25, 2008]

The lender must review the borrower's credit report to determine the current status of each credit account (including mortgage accounts), the timeliness of payments, and the frequency, recency, and the severity of any delinquent payments. On the date of the loan application, the borrower's existing mortgage must be current (which means that no more than 45 days may have elapsed since the last paid installment date). (If the credit report does not include the mortgage payment history for the previous 12 months or longer, the lender also should review the previous mortgage payment history that was provided by the mortgage servicer.)

• Credit histories that include no late payments, collection or charged-off accounts, foreclosures, deeds-in-lieu, bankruptcies, or other public records information represent a lower credit risk.

• Credit histories that include recent late payments represent a higher credit risk than those with late payments that occurred more than 24 months ago. When there are payments that were 30, 60, or 90 days (or longer) past due, the lender must determine whether the late payments represent isolated incidences or frequent occurrences. Delinquent payments must be evaluated in the context of the borrower's overall credit history, including the number and age of accounts, credit utilization, and recent attempts to obtain new credit. For example, a credit history that includes delinquent payments along with recent inquiries and a high balances-to-limits ratio indicates a high credit risk.

• Credit histories that include foreclosures, deeds-in-lieu, and public records information (such as bankruptcies, judgments, and liens) represent a higher credit risk. The greater the number of such incidences and the more recently they occurred, the higher the credit risk.

The presence of significant derogatory credit information—bankruptcies, judgments, liens, collection accounts, foreclosures, deeds-in-lieu, or a consistent pattern of delinquent accounts—dramatically increases the likelihood of a future default and represents a high credit risk. However, this does not mean that the borrower's credit will not be acceptable; rather, it is an indication that—before making a final decision about the acceptability of the borrower's credit history—the lender needs to determine the cause and significance of the derogatory information, verify that sufficient time has elapsed (based on the type of derogatory information), and confirm that the borrower has since re-established an acceptable credit history.

The lender should request the borrower to provide a copy of appropriate documentation to establish the date of a previous foreclosure or deed-in-lieu or a copy of the applicable bankruptcy documents (to confirm the bankruptcy discharge date and identify any debts that are not satisfied by the bankruptcy). The borrower must have paid off any debts that are not satisfied by the bankruptcy, or must have an acceptable repayment schedule established for them. The lender generally does not need to include in the individual underwriting file any other documentation that it obtains to explain derogatory information in the borrower's credit file. However, if the borrower claims that the derogatory information is the result of extenuating circumstances, the lender should retain not only the documentation that supports the borrower's claim, but also a letter from the borrower explaining the relevance of the documentation.

• Extenuating circumstances are nonrecurring events that are beyond the borrower's control, and result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. Documentation provided to support claims of extenuating circumstances should confirm the nature of the event that led to the bankruptcy or foreclosure-related action and illustrate that the borrower had no reasonable options other than to default on his or her financial obligations.

• Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower's inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).

When the borrower's credit history includes significant derogatory information, the lender must confirm that the borrower has re-established an acceptable credit history and that sufficient time has elapsed since the date of the last derogatory information. We generally require four years [now five per Fannie announcement dated June 25, 2008] to elapse before we will consider the borrower to have a re-established credit history. We will, however, consider two years [now three per Fannie announcement dated June 25, 2008] as an acceptable interval for re-establishing a credit history when the derogatory information in the borrower's credit record resulted from documented extenuating circumstances or when the derogatory information relates to a Chapter 13 bankruptcy (regardless of the reasons that contributed to the bankruptcy). Elapsed time is measured by comparing the date of a new mortgage application to the date that (1) a Chapter 7 or 11 bankruptcy was discharged, (2) a Chapter 13 bankruptcy repayment plan was successfully completed and the bankruptcy discharged, (3) a foreclosure sale was held, (4) a deed-in-lieu was executed, or (5) an issue related to any other significant derogatory information was resolved.

When a borrower's previous credit history included a bankruptcy or foreclosure-related action, all of the accounts in the borrower's credit report must be current as of the date of the mortgage application. In addition, the borrower's credit record under the re-established credit history must include:

• a minimum of four credit references, with at least one of the references being a traditional credit reference and one of the references being housing-related. (Housing-related references should cover the period following the bankruptcy discharge, foreclosure, or deed-in-lieu and can be in the form of mortgage payments or rental payments. If rental payments were not reported to the credit repositories, the borrower must provide copies of bank statements, money orders, or canceled checks for the most recent 12-month period as a supplement to the rent verification. Three of the four credit references (including any rental housing reference) must have been active in the 24 months preceding the date of the mortgage application.);

• no more than two installments or revolving debt payments that were 30 days past due in the last 24 months;

• no installment or revolving debt payments 60 or more days past due since the discharge or completion of the bankruptcy or the completion of the foreclosure-related action;

• no housing debt payments past due since the discharge or completion of the bankruptcy or the completion of the foreclosure-related action; and

• no new public records for bankruptcies, foreclosures, deeds-in-lieu, preforeclosure sales, unpaid judgments or collections, garnishments, liens, etc., since the discharge or completion of the bankruptcy or the completion of the foreclosure-related action.

www dot tinyurl dot com/63mqop

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There's not an underwriter on the planet that would consider a short sale to be anything but a "foreclosure related action" subject to seasoning as described above.

Don't shoot me...I'm just the messenger.

[OrlandoVal]

Originally Posted by SoCalGal

Please post a credible citation, such as an excerpt from Fannie Mae's guidelines, for your belief that short sale never had a seasoning requirement.

Surely you don't think that a lender would allow someone to terminate a loan for less than payment in full, only to turn around and borrow again as if the short sale never happened.

The persistent belief by some that short sale was somehow better than foreclosure was and is completely false.

So you lost me. Why are you saying that short sales are not better than foreclosures?

[admin]

I was understanding thread as the amount of time to live in a property in order to sell for less than full value. My bad, you are talking about amount of time to buy a home