Issue

Future Fannie Mae Loan – Primary Residence (effective May 21, 2008)

Future Fannie Mae Loan – Non Primary (effective May 21, 2008)

Future Loan with any Mortgage Company

Credit Score

Credit History

Security Clearances

Current Employment

Future Employment

Deficiency Judgment

Deficiency Judgment (amount)

Foreclosure

A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years.

An Investor who allows a property to go to foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years.

On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof of the last 7 years?”.  This will affect future rates.

Score may be lowered anywhere from 250 to over 300 points.  Typically will affect score for over 3 years.

Foreclosure will remain as a public record on a person’s credit history for 10 years or more.

Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony.  If a client has a foreclosure and is a police officer, in the military, in the CIA, Security, or any other position that requires a security clearance, in almost all cases, clearance will be revoked and position will be terminated.

Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions.  A foreclosure, in many cases, is grounds for immediate reassignment or termination.

Many employers are requiring credit checks on all job applicants.  A foreclosure is one of the most detrimental credit items an applicant can have and, in most cases, will challenge employment.

In 100% of foreclosures (except in those states where there is no deficiency), the bank has the right to pursue a deficiency judgment.

In a foreclosure, the home will have to go through an REO process if it does not sell at auction.  In most cases, this will result in a lower sales price and longer time to sell in a declining market.  This will result in a higher possible deficiency judgment.

Successful Short Sale

A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.

An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.

There is no similar declaration or question regarding a short sale. 

Only late payments on mortgage will show and, after sale, mortgage will be reported as paid or negotiated.  This will lower the score as little as 50 points, if all other payments are being made.  A short sale’s affect can be as brief as 12 to 18 months.

Short sale is not reported on a credit history.  There is no specific reporting item for “short sale”.  The loan is typically reported “paid in full, settled”.

A Short Sale, on its own, does not challenge most security clearances.

A short sale is not reported on a credit report and is, therefore, not a challenge to employment. 

A short sale is not reported on a credit report and is, therefore, not a challenge to employment. 

In some successful short sales, it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner.

In a properly managed short sale, the home is sold at a price that should be close to market value and, in almost all cases, will be better than an REO sale resulting in a lower deficiency.