Fannie Mae has a new program to approve short sales for homeowners who are current on their mortgage if they can show an imminent hardship. This is supposed to keep them out of foreclosure and bankruptcy. The fact that such a program is necessary highlights one of the problems with short sales. The mortgage companies aren’t going to agree to take a loss on a sale unless you can convince them the loan is already at risk. If your credit score isn’t damaged (meaning you are already behind on payments) they won’t approve the short sale. To add insult to injury, the short sale itself, if approved, will damage your score even further.
According to the Washington Post, credit scores by FICO, which is the major risk-prediction tool used in the mortgage industry, have severely penalized borrowers who opt for short sales. VantageScore, the FICO rival created by the three national credit bureaus, also hits short sellers with triple-digit-point losses on their credit score if they do a short sale.
All of this just further punishes the consumer, and they may end up having to do the bankruptcy they were trying to avoid in the first place. I guess this is the mortgage companies way of saying thanks for selling your house, taking care of our problem for us, and saving us from having to pay a lawyer to foreclose on you. Some thanks! (Please insert sarcastic voice here.)