Fannie Mae Short Sales Reported as Foreclosures

If you went through a short sale on your Fannie-Mae-insured loan only to find that your credit report showed a foreclosure in your recent history, the GSE says that now the issue should be resolved. According to a report from the government-controlled Fannie, “the standardized computer software the credit industry was relying on lacked a specific code for short sales.” As a result, when Fannie Mae reported short sales to credit firms, those short sales were recorded as foreclosures. The GSE requires a seven-year waiting period before borrowing again in the wake of a foreclosure and only a two-year waiting period on a short sale, so many homeowners who opted for short sales have been surprised when their loan applications on new home purchases were denied based on past foreclosures[1].According to the GSE, a new policy for lending will allow lenders to “disregard the erroneous [foreclosure] codes when processing new mortgages.” This, the GSE believes, will enable buyers with past short sales to circumvent the computer glitch and proceed with their new loan origination[2]. Of course, complains short sale advocate Pam Marron, the change will not necessarily resolve lenders’ bias against short sellers, since, Marron says, often banks assume that homeowners conduct a short sale just to get out of paying their mortgages. She adds that this bias is unfair and inaccurate, saying, “there was all this press about strategic defaulters, and I could not find any strategic defaulters.”