All I can say is “it’s about time!” For years, homeowner’s with a prior short sale have dealt with a frustrating glitch. This glitch relates to how a short sale reports on one’s credit report. We first wrote about this in August of 2012 showing how short sold mortgage were mis-coded and appeared as foreclosures. Little glitch – I think not.
The Sky is Blue – it is a Short Sale!
If I walked up to you and said “the sky is blue” I would assume we would agree. However, assume “no sir the sky is most definitely red” is your reply. I could then provide you with a plethora of scientific data proving our sky is blue. Yet again, your firm saying “the sky is cherry red and nothing you can do or say changes that”.
This analogy describes how clients with a miscoded short sale feel. They have documentation proving beyond all doubt they went through a short sale and never foreclosed. However, until November 16th, 2013 none of that mattered. Why? Prior to November 16, 2013 underwriters based their approval on Fannie Mae’s automated underwriting system.
In the case of a miscoded short sale, Fannie Mae’s automated underwriting system said – DECLINED! This was due to the system seeing a “foreclosure” on a borrower’s credit report in error. Conventional mortgage rules state a borrower must wait up to 7 years after a short sale before qualifying. However, short sale guidelines require that a borrower wait 2 to 4 years.
Solution to Fannie Mae Desktop Underwriter Miscoded Short Sale
While what you have read so far may have you in shock, rest assured as all hope is not lost. Fannie Mae finally created a solution to this short sale miscoding fiasco. Now, Fannie Mae provided lenders with tools to remedy a miscoded short sale immediately! Learn more here.
A little check box to the rescue
As of November 16, 2013 Fannie Mae rolled out what we have waited years for. An upgraded version of their Desktop Underwriter software provided Arizona mortgage lenders with tools to tell the system an applicant has a short sale in their past and on their credit. This instructs Desktop Underwriter to ignore the MOP code on the short sale tradeline. This in turn allows a the loan officer to document a client completed a short sold and not a foreclosure.
Now, lenders can accurately process a post short sale loan application much more efficiently. After all, past short sellers may be eligible for a Conventional loan 5 years sooner than those that have foreclosed.
by Jeremy House