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Credit Ramifications
4 posts by 3 users
Dustin W.Real Estate AgentLaguna Hills, California 
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Does anyone have specific knowledge or personal experience with credit/FICO score adjustments for a Short Sale vs. a Foreclosure? I.e. Short Sales are supposed to have less impact on the actual score than a Foreclosure but I recently read an article that stated otherwise. Here is an excerpt from an article written by Elizabeth Weintraub. Foreclosure or Deed-in-Lieu of Foreclosure
Short Sale
Here is a link to the full article. http://homebuying.about.com/od/4closureshortsales/qt/060907SScredit.htm According to this article the credit score ramifications are the same! I understand that Fannie Mae has released updated guidelines stating that a person who has a foreclosure on credit can buy again after 5-7 years but a person who sold as a short sale can buy as soon as 2 years. However, no mention of specific credit requirements or ramifications. Does anyone know what the fico adjustments for a Foreclosure and Short Sales are? |
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Jason F.Real Estate InvestorGainesville, FL 
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I think the whole meaning of the word "credit" 'is going to change over the next few years. For those of us who make it out of this market 'down turn' with no foreclosures, ss, or 'dings' it will look very good. But I don't think foreclosures or ss will be looked down upon as much as they were over the past 15 years. Think about it, if the credit score system is suppose to rank credit-worthiness on a national level, what are banks going to do when the average drops by 100 or 200 points because of these foreclosures? |
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Dustin W.Real Estate AgentLaguna Hills, California
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I agree with you Jason. There are too many people with the same problem right now. They can't, or aren't paying their mortgage. If this "group" of people is penalized and taken out of the home buying market for too long that could affect future supply/demand levels. I understand that there needs to be a consequence for every action and I think that issue may not be discussed as much as it should. However, at what cost are we willing to penalize these folks and what effect will it have on our economy and housing market? Thanks for your insight. |
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Caitlyn C.
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** Does anyone have specific knowledge or personal experience with credit/FICO score adjustments for a Short Sale vs. a Foreclosure? I.e. Short Sales are supposed to have less impact on the actual score than a Foreclosure but I recently read an article that stated otherwise. ** Both actions result in Score Factor Code #22--"serious delinquency, derogatory public record or collection." Thus, they impact one's FICO score exactly the same until, after about two years, the derogatory credit behavior is supplanted by responsible credit behavior. A foreclosure will remain a public record for 7 years, so will impact the FICO score longer but, near term, the devastation is the same. The impact of either action can be mitigated by paying ALL OTHER trade lines in a timely way. Also, if one's FICO score was lofty before the derogatory behavior, the "fall" will be less damaging. There is no specific point value assigned to any score factor except possibly credit inquiries (minimal impact). The scoring algorithm is like a 3-part test, the essay portion is less damaging if you score well in multiple choice and T/F. Conversely, if you ace the essay portion, you can slack off in multiple choice and T/F. A compelling reason to submit to a short sale vs. foreclosure is that the seasoning period is shorter with short sale. See: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf Every investor (in my opinion) should print off this guideline and explain it to the distressed homeowner so that s/he can make a fully informed decision. |
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Posted: 10/15/2008 at 04:01PM