In an effort to help the millions of Americans currently stuck in underwater mortgages Fannie Mae and Freddie Mac recently outlined plans to open up access to short selling as an alternative to outright foreclosure. In a short sale, the lender agrees to take a loss when the borrower sells a property for less than the value of the current mortgage. Fannie Mae and Freddie Mac are planning to give the option of short selling to borrowers who are underwater on their mortgages, have remained current on their payments, but are facing an imminent “hardship.” However, because short sellers have traditionally already been delinquent or have gone on to default, the credit scoring models used by FICO and VantageScore both treat short sellers as almost as risky as those who go through foreclosure, meaning a short sale usually results in a triple-digit hit to a borrower’s credit score. Neither Fair Isaac nor VantageScore Solutions have plans to adjust their scoring models to account for the unique situation of the the borrowers Fannie and Freddie hope to target with their new short selling program, so borrowers considering the option should be prepared to have their credit scores take a big a hit. | Read More
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