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Short Sales Could Equal Low Credit Scores

2012/09/12 by

It’s not surprising to me that so many Americans are dealing with underwater mortgage loans right now. But what IS surprising to me is that between the two of them, Fannie Mae and Freddie Mac have 3.7 million underwater mortgages in their their portfolio for which borrowers are making timely payments. 3.7 million! And those are just the ones who are paying on TIME. Imagine how many are behind. So, clearly, underwater mortgages are a huge issue in our country. Low and behold, Fannie & Freddie come up with this brilliant plan to work out a short-sale program for these folks to help them out. The down side is, it’s looking like the program will have a nasty effect on the sellers’ credit scores– even though they’re current in their mortgage payments. See what Kenneth R. Harney of the Los Angeles Times has to say about it:

“Homeowners who qualify for the Fannie-Freddie short-sale program could see their credit scores fall, even when they’ve made timely payments on their loans.

With generous new guidelines from Fannie Mae and Freddie Mac likely to stimulate large numbers of short sales by underwater homeowners, what effect will the sales have on the sellers’ credit scores?

It’s a crucial question, because short sales typically cause FICO scores to plummet, sometimes 150 points or more. This, in turn, complicates sellers’ credit capabilities for years and makes additional borrowing — whether for auto loans, credit cards or new mortgages — tougher and more expensive.”

Click here to read why sellers’ scores will take such a hit, and what can be done about it– if anything.

Word to the wise: if you are considering doing a short-sell with your home, you’d best read up on the potentially negative impact it could have on your credit score. This is no joke, folks– tainted credit can take years to rebuild. Educate yourself, make smart decisions, and don’t be afraid to ask for help if needed.

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