Industry NewsMortgage

Damage to credit scores could trip up new Fannie, Freddie short-sale program

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Without some last-minute gymnastics, underwater homeowners participating in Fannie and Freddie's ambitious new plan to allow short sales by borrowers who haven't missed a loan payment could see their credit scores dented just as severely as if they'd gone into foreclosure after months of nonpayment. For the first time ever, on Nov. 1 Fannie and Freddie plan to allow mortgage servicers to begin accepting short-sale packages from nondelinquent borrowers who can demonstrate hardships like the loss of a job or death of a spouse. Under previous rules, only delinquent homeowners could qualify. The program offers huge potential relief for hundreds of thousands of underwater homeowners who have continued paying their albatross mortgages on time to finally get rid of them. That's great. But there's a looming, disruptive problem. As of today, under current national credit reporting practices, those nondelinquent borrowers are likely to be treated the same for credit scoring purposes as seve...