Is there a difference between pre-foreclosure sales and short sales? Well, Fannie Mae seems to think so, see https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/pdf/0816faqs.pdf.
Pre-foreclosure sales are where the borrower has been delinquent on payments and the lender accepts a lesser amount than owed to settle the loan and to avoid a foreclosure. This is treated differently than a true short sale, where although the lender takes a lesser amount than what is owed to settle the loan, the borrower may have had one or two 30 day late on their credit report.
Fannie Mae says that if a) a borrower has completed a short sale, b) their mortgage payment history complies with their excessive mortgage delinquency policy, c) they have never been more than 30 days late, and d) there are no deficiency judgments, then Fannie Mae has agreed to insure these loans if a lender will give them a loan.
In theory that sounds great, but does it even matter? Most lenders will not even consider a short sale with a borrower until they are late on payments. In addition, after speaking to multiple wholesale lenders, most said that for now, they are avoiding ANY borrowers who have a short sale on their credit, even if there were no late payments or deficiency judgments! A couple of lenders said it would be a case-by-case basis, but were very leery at best.
My feeling is that it is too early in this mess to tell how everything will be handled, so lenders are being overly cautious for now. Common sense is telling me that Fannie Mae wants to work with those who have lived up to their credit obligations. It's not just the speculators that are upside down, it is regular homeowners who bought in the last couple of years as well.
Now, Fannie Mae also states that it is not their policy to direct lenders on how to report on a borrower's mortgage credit history. To me, logic would therefore dictate that whether or not a lender reports a short sale on a credit report is a negotiable item during a short sale. I've been sort of taking a straw poll here, and want to know what you guys out there think. I'd really like to hear what your take on this policy is or what you think it should be! Looking forward to hearing from you.
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