I recently ran across a person that did a short sale on his home. His home closed on August 31st, 2009. He was supposed to do a simultaneous close on another home. He signed all the loan docs at title a week before the proposed settlement date of August 31st, the same day his home sold. There was a funding condition that called for the HUD settlement statement from the sale of his home, to be reviewed by the funder prior to close.
Because his home was a short sale, the settlement statement showed less money being paid to the lender than the balance that appeared on the credit report. This was a red flag for the funder and she called for a supplement to get a rating on the loan. The supplement came back and showed as "settled in full". The loan was denied because of Fannie Mae's rule that does not allow a person to have a short sale for two years prior to close of escrow. In other words, the lender would not be able to sell on the secondary market and they would have to service the loan. Most lenders are not willing to do this.
The word "settled" is related to a short sale versus "paid in full". The only option this person had was to go to a bank that services their own loans. So, they do not sell the loan on the secondary market. They make their own rules and do not have to follow Fannie Mae guidelines. Obviously, a bank is still going to consider this person a higher risk but with compensating factors this would be an option for people to get a loan with a short sale on credit.
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